Executive directors and non-executive directors: What are they and what is the difference?

The word ‘executive’ has become a little malformed in recent years. Decades ago, senior figures in large corporations were simply referred to as ‘executives’. A good fictional example of this is Pete Campbell in AMC’s acclaimed show, Mad Men – he was an Account Executive and relatively senior in the advertising business. He executes the actions that drive the client account. In today’s world, Account Executives are often junior to Account Managers and, in turn, Account Directors.

Thankfully, there’s little confusion further up the chain of command. It’s clear to most, if not all, that Executive Directors are at the very top of the leadership tree, and the ‘execution’ part of the title is the clue to how they differ from Non-Executive Directors. Let’s start by looking at a typical Executive Director role.

What does an Executive Director do?

The role is generally a divisional director or an overarching director. They may or may not sit on the board of directors, and this often depends on their experience and seniority within the organisation. But one thing they will all have in common is that they have a strong degree of executional control of the strategic side of the business or their specific business area. 

It’s not unusual to see more than one Director within a business, and these will be clearly defined by specific titles, such as Technical Director, Sales Director or Finance Director, to name but a few.

Some organisations may have multiple Managing Directors who oversee different areas of the company, for example, Managing Director of Consumer Accounting, Managing Director of Business Accounting – if it were a financial institution.

Other businesses may take a more monolithic and straightforward approach, with one overarching director, often a CEO, who sits above several department leads such as Head of Recruitment, Head of Business Development, and so on.

Typical tasks of an Executive Director include:

• Ensuring that the business as a whole can meet organisational goals
• Communicating change and progress through the business
• Participating in and leading strategic planning
• Understanding the operational workings of the business
• Working closely with directors and/or the senior leadership team
• Leading and reporting to the board of directors or shareholders
• Understanding the company’s assets, budgets and finances
• Being accountable for legal and regulatory compliance

What does a Non-Executive Director do?

A Non-Executive Director (NED) can approach a business in two ways. They can either be hired ‘cold’ and into the business, or they can be an ex-Executive Director who is giving up their role in the day-to-day running of the business. This is not an uncommon situation in older age Execs who wish to wind down in the years before retirement but remain close to the business.

NEDs, as the title suggests, no longer execute actions as part of the business. Instead, they provide their expertise individually or as a board as a way to assist the Executive Director or CEO. Whilst a NED is slightly more detached from the operational side of the company, they are still tied by a legal obligation and ethical code.

Typical tasks of a Non-Executive Director include:

• Challenging if, when and how the business can meet organisational goals
• Advising the Exec Director and wider board on change
• Helping the Exec Director with strategic planning
• Working closely with the rest of the board
• Meeting regularly with the board of directors or shareholders
• Understanding the company’s assets, budgets and finances
• Propose to remove or appoint Executive Directors when required

Different NEDs will have different responsibilities and may have different stakes in the business to one another. This will directly affect which areas of the business that they may advise on and how often they meet. 

An easy way to think about NEDs is as ‘vested advisors’ – almost like a consultant that has an inherent interest in the business. Remember, if a company does well, a NED will benefit too, particularly if they’re a shareholder. In fact, the Investment Association encourages NEDs to buy shares in any company where they sit on the board.

The benefits of hiring a NED

A NED can bring decades of experience to an already successful company, and this might be useful for a business that has plateaued or reached a point in its journey where it could benefit from additional expertise such as tapping into a new market.

NEDs not only help to improve the trajectory of a business, but they can also train, upskill and mentor Executive Directors, ensuring they’re fit for the next stage of business growth.

We believe that NEDs can bring great value to a business, figuratively and literally. You’ll know when you’re at this point, but you may not know what to do next or how to approach it. This is something that we advise many of our clients on, from appointments to shareholdings and everything in between.

If you’re keen to explore the concept of a Non-Executive Director for your business, then get in touch with our team and we’ll be able to help.