Guides
The difference between a director and a non-executive director
The difference between a director and a non-executive director: a guide to help with boardroom basics and enhance your corporate governance education.
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The difference between a director and a non-executive director
The main difference is in levels of responsibility: Executive directors serve on the board of a company and take part in managing day-to-day operations. Non-executive directors just sit on the board and have little involvement with day-to-day issues.
Practically, this often means executive directors are full-time employees with an annual salary. NEDs are never full-time employees.
The main differences in more detail
Executive directors (EDs) | Non-executive directors (NEDs) |
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| EDs have a formal role in the day-to-day management of a business in addition to their boardroom duties | NEDs have no day-to-day role. Their only duties are in the boardroom |
| EDs are almost always paid employees with an annual salary. Many work full-time for the business | NEDs are not employed by the business. They don’t receive a salary (although they may receive some kind of compensation for being on the board. It depends on the business) |
| EDs are on boards to provide a core link between daily operations and high-level governance. | NEDs are on boards to provide oversight, sectoral expertise, and constructive challenges to a company’s strategic decision-making. |
| EDs’ viewpoints are shaped by their daily work. They know the minutiae very well, and can see how big board decisions will work in practice. | NEDs’ viewpoints are shaped by their distance from daily work. They have a strong perspective on the big picture, external threats and opportunities. |
| EDs often have to report to their colleagues on the board. They are part of the board and contribute to decision-making, but the board’s job is to scrutinise executive performance, so sometimes, the dynamics will shift for this scenario. | NEDs often have to evaluate their executive colleagues, questioning decisions, monitoring performance, and suggesting measures for improvement. |
The main similarities between director and non-executive director
- Both EDs and NEDs are bound by fiduciary duty. Both must fulfil their board roles with the same loyalty, care and respect for the rules. Both will be held responsible for any ethical breaches, fraud or poor governance.
- In general, both have the same voting rights
- Both are active members of the board. They have the same rights of contribution to conversations etc.
Are non-executive directors the same as independent directors?
Non-executive directors, independent directors, independent non-executive directors… the volume of words in these terms can be enough to confuse people. But there are core facts about these positions that you should know.
- Independent directors (IDs) are the same as independent non-executive directors (INEDs). Geography is the only reason the two terms exist side by side: regions like North America often use ID, whereas European/Commonwealth countries tend to use INED.
- There is a difference between an ID/INED and a standard non-executive director (NED). IDs/INEDs are a subset of NEDs.
The “I” is the key difference. While all NEDs and IDs/INEDs are non-executive and have nothing to do with the daily running of a company, standard NEDs will still have a material attachment to it, like shares, personal relationships, or status as a former executive.
If a director does not have any such material attachment to the company, they are considered “independent” and can use the term ID/INED. That independence gives the director a unique vantage point. They can critique, challenge, and approve based on their own impartial judgment, free of any bias that might come from knowing the company’s internal processes too well.
How to become a director or a non-executive director
- Executive directors are responsible for the day-to-day management of the company working alongside the other board members. In smaller companies, the directors and shareholders may be the same people, but the roles are very distinct. Most executive directors are employees of the company.
- Non-executive directors are not involved in the day-to-day running of the business. They are not employees of the company. Their role is to challenge and develop strategy, scrutinise the board’s performance, manage financial controls and risk, determine remuneration, and appoint or remove executive directors if and when there is a need to do so.
Aspiring directors and non–executive directors can receive training to help them understand their role and responsibilities.
To develop the practical knowledge, insight and global mindset of a great director and non-executive director, you can take the Diploma in Corporate Governance.
Download the course brochure here.
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