# Non-Executive Director: Role and Responsibilities

![Non-Executive Director: A member of a company’s board of directors who is not part of the executive team.](https://www.investopedia.com/thmb/HIElvlM_TqKq_ZsZnfj7bIDZWaI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/non-executive-director.asp-final-119d2188aa3e4bcbb9b61517054647d7.png)

*NEDs are not amployees of the company and don't have operational responsibilities. — Laura Porter / Investopedia*

> **Definition**
>
> A non-executive director provides independent, strategic guidance to a company, but doesn’t have day-to-day operational responsibilities, as a member of its board of directors.

## What Is a Non-Executive Director?

The term “non-executive director” refers to an independent advisor for a company’s [board of directors](https://www.investopedia.com/terms/b/boardofdirectors.asp) who is involved in policymaking and planning exercises. They must act in the interest of corporate stakeholders.

A non-executive director is a board member but isn’t a company employee, which means they don’t engage in the day-to-day management of the organization.

### Key Takeaways

*   A non-executive director typically does not engage in the day-to-day management of a company but is involved in planning and policymaking.
*   Non-executive directors sit on a company’s board of directors, and most are compensated for their time through fees, equity, and cash payments.
*   They differ from executive directors, who are hired to oversee the operational activities of nonprofits.

## Understanding the Role

Non-executive directors are put in place to challenge the direction and performance of a [company](https://www.investopedia.com/terms/c/company.asp) as well as its existing team.

Since non-executive directors do not hold [C-level](https://www.investopedia.com/terms/c/c-suite.asp) or managerial positions, they are thought to understand the interests of the company with greater objectivity than the executive directors, who may have an [agency problem](https://www.investopedia.com/terms/a/agencyproblem.asp)—that is, a potential conflict of interest between management and shareholders or other [stakeholders](https://www.investopedia.com/terms/s/stakeholder.asp).

Also known as external directors, independent directors, and outside directors, non-executive directors are often installed on a firm’s board for [public relations](https://www.investopedia.com/terms/p/public-relations-pr.asp) reasons. For instance, a particular non-executive director’s community standing, record of [philanthropy](https://www.investopedia.com/terms/p/philanthropy.asp), and prior experience could provide positive exposure and symbolic value for the firm.

Although they aren’t employees, non-executive directors may still be compensated for their time. They can be paid through fees, cash, or equity compensation. The amount they are paid depends on the industry, the size of the company, and the amount of time they spend doing work for the corporation.

> **Important**
>
> Non-executive directors are equally liable for the success or failure of a business, as outlined by statutory requirements and tax laws.

## Responsibilities of a Non-Executive Director

As a function of their leadership role, non-executive directors are required to embody certain key values. This includes using their past experience to mentor others during new ventures. They are also responsible for keeping the executive directors and the entire board accountable. This can be accomplished by helping with and managing a company’s:

*   Strategy
*   Performance
*   Risk from an objective standpoint unrelated to the intimacy of [operating activity](https://www.investopedia.com/terms/o/operating-activities.asp)

They also independently assess the company’s performance to ensure the firm’s stakeholders are considered before the needs and wants of the management or the board.

A non-executive director with the right experience may also take a deep look into the [financials](https://www.investopedia.com/terms/f/financialperformance.asp) of the company to verify fiscal responsibility, putting necessary controls in place if required.

All non-executive directors are required to commit a significant amount of their time to the oversight of the company. They are expected to disclose any other significant time commitments to the board and to inform the board of any changes to their schedules.

Non-executive directors must also provide value through leveraging their network of outside contacts that can benefit the company.

> **Fast Fact**
>
> In some cases, non-executive directors may serve in the same role for two or more companies. When this happens, they must fully disclose their time commitments to both boards and juggle their responsibilities accordingly.

## Non-Executive Director vs. Executive Director

It’s easy to confuse a non-executive director with an [executive director](https://www.investopedia.com/terms/e/executive-director.asp). But the two are inherently different. The former is not an employee. The latter acts as a leader and manages the day-to-day operations of the company they work for—usually a [nonprofit organization](https://www.investopedia.com/terms/n/non-profitorganization.asp).

Along with managing company matters, some of the other responsibilities of an executive director include:

*   [Strategic planning](https://www.investopedia.com/financial-edge/0612/the-importance-of-strategic-planning.aspx)
*   Operating within and adhering to a [budget](https://www.investopedia.com/articles/07/budgetingforcompanies.asp)
*   Leading [fundraising](https://www.investopedia.com/ask/answers/03/062003.asp) efforts and boosting membership
*   Helping with public relations

Although the role and responsibilities of an executive director are similar to those of a [chief executive officer (CEO)](https://www.investopedia.com/terms/c/ceo.asp), their salary is typically much lower. In some cases, an executive director may work on a volunteer basis.  

## Example of Non-Executive Director

Here’s an example to demonstrate the roles and responsibilities of non-executive directors.

Let’s say the former CEO of a successful [public technology company](https://www.investopedia.com/articles/markets/030816/worlds-top-10-technology-companies-aapl-googl.asp) assumes the role of a non-executive director with a technology startup. As part of the board, they may be expected to:

*   Mentor or steward any new ventures the company takes and leverage their past experience in the sector
*   Assist executive directors with insight into hidden problems or external factors that may negatively affect the business and its [profitability](https://www.investopedia.com/ask/answers/012715/what-difference-between-profitability-and-profit.asp)

In certain cases, non-executive directors are well-established in their fields. As such, they may have good connections in their industries. In the case of the former tech CEO, they would likely have warm relationships with [venture capital](https://www.investopedia.com/terms/v/venturecapital.asp) firms that can help the [startup](https://www.investopedia.com/terms/s/startup.asp) achieve its goals of expansion and growth.

## What Is the Role of a Non-Executive Director?

A non-executive director is an individual appointed to a company’s board of directors. They are not employed by the company but act as independent advisors or directors to help the company achieve its goals. They are involved in policymaking and planning exercises and routinely monitor the company’s executive directors to ensure they act in the interest of corporate stakeholders.

## Are Non-Executive Directors Compensated?

Most non-executive directors are compensated for their time. Compensation can be through fees, equity, or cash. Their compensation can be high because of their experience and connections within their respective industries.

## How Do Non-Executive Directors Differ from Executive Directors?

Non-executive directors are different from executive directors. Executive directors normally work for nonprofits and assume the same responsibilities as a CEO, including managing the day-to-day operations, overseeing fundraising, boosting membership, and sticking to a budget. Unlike non-executive directors, some executive directors are not compensated for their time.

## The Bottom Line

While non-executive directors are not a part of the executive team, they are members of the board of directors. Therefore, they are equally liable for the success or failure of the business. However, they aren’t employees. As such, they focus more on acting in the interest of shareholders.

> **Article Sources**
>
> 1.  Cornell Law School, Legal Information Institute. “[42 U.S. Code § 12651b—Authorities and Duties of the Board of Directors](https://www.law.cornell.edu/uscode/text/42/12651b).”
>     
> 2.  Sidley Austin LLP. “[Corporate Governance and Directors’ Duties in the United States: Overview](https://www.sidley.com/-/media/publications/us_corporategovernanceanddirectorsduties_w0118693.pdf).”
>     
> 3.  Sidley Austin LLP. “[Corporate Governance and Directors’ Duties in the United States: Overview](https://www.sidley.com/-/media/publications/us_corporategovernanceanddirectorsduties_w0118693.pdf).” Page 3.
>     
> 4.  Sidley Austin LLP. “[Corporate Governance and Directors’ Duties in the United States: Overview](https://www.sidley.com/-/media/publications/us_corporategovernanceanddirectorsduties_w0118693.pdf).” Page 4.