What is an non-executive director (NED)?

 

 

What is a non-executive director?

A non-executive director (NED) is a member of a company's board of directors. He or she is not strictly involved in the day-to-day management or operations of the particular firm, but instead provides independent oversight, strategic guidance, and policy-making support when this is required – generally at board meetings that are held every six to eight weeks.

How does the NED role vary from that of an executive director?

According to the Corporate Governance Institute, the critical differences between a NED and an executive director are as follows:

• NEDs are not involved in the day-to-day running of the organisation, and are not employees of the particular company on whose board they have been asked to sit. Their role is to challenge and develop strategy, scrutinise the board’s performance, manage financial controls and risk, determine remuneration, and appoint or remove executive directors if, and when, there is a need to do so; while
• an executive director, on the other hand, is responsible for the day-to-day management of the organisation, which is carried out by working alongside other senior executives. In smaller companies, the directors and shareholders may overlap – but the roles are distinct. Most executive directors are employees of the particular organisation.

What sort of background is valuable when you wish to take on a NED role?

A document produced by Odgers Berndtson “Stepping up – A guide to getting your first non-executive director role” provides useful reading material for individuals keen to take on the rewarding and challenging NED role, with a view to contributing towards the particular company’s ongoing, and ultimate, success.

In Part 2, Important Considerations, the authors share this information about the ideal skillset and mindset that is required:

“As you think about your ‘offer’ as a non-executive director, it may be helpful to think in terms of both ‘skillset’ and ‘mindset’. ‘Skillset’ can be roughly defined as an individual’s professional roles and accomplishments. In other words, what specific commercial skills do you potentially bring to the board? It helps to be specific. While boards typically expect candidates to bring a broad sweep of commercial experience, they will also seek ‘spikes’ in terms of specific strengths and attributes. These may include financial skills (for the audit committee), or those relating to overseas markets, customer engagement, digital transformation, culture change, restructuring, or public-facing skills, to name just a few. But don’t try to be all things to all people. There is a natural temptation for NED candidates to try and demonstrate the broadest possible range of skills when they apply for such a role, which is not only confusing but also serves to flatten the ‘spikes’ that will help them to stand out… Non-executive director candidates are better advised to demonstrate real depth in a few key areas, than to try and spread themselves too thin.”

Another way of putting it is: which personality characteristics or behavioural sets are my fellow board members not likely to be find helpful?

The same Odgers Berndtson document, with great humour, describes these “seven deadly sins”:

• the chatterbox – do you love with the sound of your own voice, to the extent where you suck much-needed oxygen out of the boardroom?
• the mute – there’s no point being there, if you don’t speak up!
• the stuck record – you often start a lengthy contribution with, “In my day, …” Oops!
• the grandstander – do you simply want to show how clever you are, without a thought to establishing a collective direction and problem-solving strategy among the other directors?
• the lazybones – do you read, digest, and give thought to the board papers on receipt thereof, or simply skim-read them on the way to the next meeting?
• the no-show – if you can’t make the meetings, don’t take the job!
• the fair weather friend – in a crisis, do you think only of yourself?

What do the local statistics reveal on NEDs?

In South Africa, NEDs tend to constitute over half of the main board of a company (averaging about 54 percent), and while they remain crucial for strategic decision-making and oversight, their representation remains largely white (48 percent) and male (71 percent).

Other important stats include:

• women constituting 39 percent of the 489 NED roles of the JSE’s Top 50 Companies;
• the average age falling from 60.9 to 60.6 at last tally;
• female NEDs being three years younger, on average (i.e. approximately 59 years), compared to their male counterparts (i.e. approximately 62.2 percent);
• a significant portion of new NEDs also being first-time public board directors, at 13 percent in 2022, compared with 27 percent in 2021;
• 64 percent of new board appointments in 2022 being South African nationals, versus 61 percent in 2021.

Read more, here.

Are there any notable South African NEDs?

There are plenty. Two who immediately come to mind are:

• Kevin Hedderwick, who served as a NED at Famous Brands (owner of Steers, Wimpy, and other fast food franchises), where his contribution included overseeing the transformation of the group from a small, two-brand company with a limited supply chain, into a vast vertically integrated enterprise;
• Thabo Mosololi, who gives a valuable contribution as a non-executive director on numerous JSE-listed companies, including Truworths Ltd, Pan African Resources Ltd, and Famous Brands from early 2023.

How does the remuneration usually work in the NED role?

According to Glassdoor, the average estimated salary for a non-executive director in Johannesburg, is R1 099 610 per annum.

When BusinessTech reported in early 2023 that professional services firm PwC had published its latest version of “Non-executive directors: Practices and fees trends”, the average remuneration range given was R472 000 to R3.47 million per annum.

Where should I set about looking for a NED role?

While it is possible to find a NED role on your favourite job portal, such as the following, it is also a good idea to investigate the opportunities that a skilled and reputable executive search firm may know of as a result of their extensive and strategic network.