Non-Executive Directors (NEDs) are members of the Board of Directors of a company who are not part of the executive management team. This means they are not employed by the company but act as external collaborators in order to provide the company with expertise and advice.
Despite not being involved in the day-to-day management tasks of their executive counterparts, they do have the same responsibilities, legal duties and potential liabilities of any other Director.
NEDs are common among growing start-ups. They are sometimes required by high-profile investors in order to introduce a form of monitoring and mentorship from a more experienced figure. They could be a former CEO of a successful company within the same sector, an academic within the field that the company operates in or any other professional with the relevant expertise.
Let’s take a closer look at four of the main benefits that a NED typically provides.
Often, NEDs have helped many young companies during their career, and have often run their own organisations. This means they have been through the ups and downs of entrepreneurship before, and they have already faced sector-specific challenges.
In the biotech sector, for example, it may be advisable to hire a NED with previous experience of medical regulatory approval, so that they can direct the company through such a challenging and crucial stage for the business.
By not partaking in the day-to-day operations of a business, NEDs keep a relatively fresh and unbiased perspective on growth, competitive advantage, internal management choices etc…
A NED sees the company similarly to potential investors and other external stakeholders, making sure that the management team doesn’t get stuck in its own echo chamber.
Throughout their career, NEDs typically make meaningful connection with other businesses, potential partners, investors and other figures that can have exceptional value for a young company.
Networking can be very time consuming when you are building connections from scratch. An introduction from a NED can save Founders plenty of time on negotiating a strategic partnership, which might end up making the difference between success and failure.
Running a company is hard, not just because of the long hours, constant uncertainty and risks, but also because dedicating so much of your time to a single project can skew your judgement of the challenges you’re facing. As Founders, it’s common to fall victim of bad habits such as neglecting key functions or overly worrying about others, resulting in mission creep.
A NED has the objectivity to keep all of that in check, evaluating the business on the basis of clear targets and metrics and redirecting the management team’s focus on the key challenges or goals of the company.
So, should you hire a NED?
Of course, that depends first and foremost from the stage your company is at and your growth expectations. NEDs are usually appointed to help provide guidance to the executives during a fast growth phase.
NED positions are usually not paid in cash, but sometimes they receive a remuneration in terms of equity, such as shares, options or growth shares, in which case you should be willing to take on some (very limited) dilution.
Businesses operating in very specialised sectors which require specific expertise are the most likely to appoint a NED, in order to help them navigate challenging regulatory environment, provide guidance on how to handle intellectual property or how to tackle competition.