Executive vs non executive – what’s in a name?

20 Jan 2014

Southampton FC announced that Nicola Cortese has resigned as executive chairman and club owner Katharina Liebherr had taken on the role of non-executive chairman until they find a Chief Executive Officer to appoint.

Many businesses appoint non executive directors (NED) and the role and popularity has increased over recent years. A NED will normally find themselves considering strategy, performance, risk and people and they are tasked with monitoring the executives’ activity. NEDs do however have the same legal responsibilities as executive directors.

Lucy Grey, solicitor at Trethowans LLP specialising in corporate matters including advising companies and directors, states “A NED normally has life and business experience; they are brought in to provide expertise, knowledge and a balance of skills, as well as to challenge management. They are not there to run the day to day business.” She adds “There is no legal distinction between an executive and non executive director. The only point separating them is the role they perform and their duties and responsibilities should not be underestimated. A NED brings a degree of independence by listening and balancing the interests of the other board members.”

Many businesses have people in different roles, but what do all these fancy titles mean?

  • Executive Directors – They are responsible for the day to day management of the organisation working alongside the other members of the board. In smaller companies the directors and shareholders may be the same people but the roles are very distinct. Most directors are employees of the company.
  • Non Executive Directors – They are not involved in the day to day running of the business, nor are they employees. Their role is to challenge and develop strategy, scrutinise performance of the board, manage financial controls and risk, determine remuneration, appointment and remove executive directors.
  • Chief Executive Officer – This role may also be known as Managing Director. It is normally the highest ranking director/officer in a company. They would report to the board of directors as a whole and may be delegated powers which allow them to solely make decisions on specific issues . Their role will be set by the board but normally they will have responsibilities as a director, decision maker, manager and leader. Depending upon the size of the company their role may be to implement strategies and make major decisions, and in smaller companies they may be seen as the conduit between the board and the staff. In both instances they will be actively involved in the day to day running of the business.

To make matters more confusing you may also hear the words “shadow” or “de facto” directors.

  • Shadow directors – This is a person not formally appointed as a director in any capacity but they provide directions to influence the board and those directors act upon those instructions.
  • De facto directors – These are individuals that third parties consider to be directors because they perform a directorship role, regardless of whether they have the ‘director’ title.

“Most boards contain a mix of people, with a variety of skills and attributes, but remember whatever title you have if you are involved in a company every decision you make should be in the best interests of the company and you should always bear in mind your fiduciary and statutory directors duties” says Lucy.