An independent member of a board can be an impartial voice for decision-making and may bring specialist expertise. Nigel Adams explains the benefits and things to consider when selecting a NED.
Many companies have one or more ‘non-executive' directors (NEDs) on their board, but not all do. So what are NEDs and how do you decide if your hospitality company might benefit from having one?
Put simply, a NED is a part-time director who sits on the board of a company and helps the board make decisions. NEDs are not company employees, nor do they hold executive office. The day-to-day running of a company is normally left in the hands of the full-time executive directors, with NEDs primarily focusing their time on board meetings. NEDs are often used to bring an independent view at board level, being those who can stand back and take an impartial view on what is going on, something that may not be so easy for executive directors who are much closer to the business.
NEDs are often used to bring an independent view at board level, being those who can stand back and take an impartial view on what is going on
NEDs are also often employed for their specialist skills, experience and/or contacts, adding something that may be lacking in the executive directors' skillset. NEDs have the same legal responsibilities, duties and potential liabilities as executive directors, but the amount of time devoted to the company by a NED (compared with an executive director) is likely to be taken into account when assessing whether they have discharged their duties to the company. Normally a NED will be asked to devote a fixed amount of time to a company and be contractually obliged to attend certain (or all) board meetings, but as they do not devote their time on an exclusive basis, some NEDs will often be appointed to the boards of more than one company; in doing so they must observe duties of confidentiality.
Would your hospitality business benefit from a NED?
In order to decide if your company would benefit from appointing a NED, you should first determine what your need is. If you appoint the right person then you might rapidly gain skills, experience, connections and an objective view. For example, if you look at your current board, are there obvious skills or experience it lacks which could be made up for in a NED appointment?
In the catering world, having an individual on your board who is experienced in successfully running a similar enterprise to your own could be very valuable. Additionally, having somebody who is well connected in the catering industry or who could help you source customers or funding might also be reasons for an appointment.
If a board struggles to make decisions due to deadlock or too many arguments, having an impartial NED can help break deadlock and allow more effective decision-making.
Finding and appointing a suitable NED
If you think your company could benefit from a NED, there are many places that can help you source suitable candidates for interview. For example, the Institute of Directors and Women on Boards are two organisations that help place NEDs in companies looking for help, but there are many others. You should take the time to thoroughly vet any candidates, just as you would for any new appointment, so as to make sure your requirements are met as fully as possible.
Once you have found someone suitable, the contract for their services is normally set out in a "letter of appointment". This will set out the terms, including pay and how much time the NED is to devote to your company, etc. You can also decide if a NED is to have shares in your company and what the process is to review their performance and deal with any problems that might arise. The appointment process will also be governed by your company's Articles of Association (‘Articles') and will require a board resolution in favour of the appointment as well as the filing of form AP01 at Companies House so the directorship is recorded and published. The Articles will also determine how voting rights are shared among the directors.
Nigel Adams is a partner at London law firm Goodman Derrick LLP
Photo: NDAB Creativity/shutterstock.com
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