On a board of directors, there are three types of company directors: executive directors, who work for the organization, non-executive directors, who work on the board of directors at the organization and who come from other companies, and independent directors, whose role is to fill gaps in skill sets, but not to any long-term relationship with the company, according to the Australian Institute of Company Directors.
To Australian Judge, in 2014, gave a decision that strictly defines the roles of executive and non-executive directors:
The essential characteristic of an executive director is his or her discharge, usually as employee, of executive functions in the management and administration of the company. Usually, an executive director has also received parallel duties in the company, on the one hand by virtue of the office of director under the statute and at the other hand, as an executive employee under an express or implied employment agreement.
Non-executive directors are usually independent of corporate management. In contemporary corporate governance theory, the role of independent, non-executive directors is encouraged.
The degree required by an executive director is measured objectively. In contrast to the managing director, non-executive directors are not bound to give continuous attention to the affairs of the corporation. Their duties are at an intermittent nature to be performed at periodic board meetings and at meetings of any board on the board. ” Jaques v AIG Australia Ltd  VSC 269 (13 June 2014) ” Notwithstanding a small number of professional company directors, there is no objective standard of the reasonably competent company director.
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Good governance calls for a majority of non-executive (and independent) directors on the board. Otherwise the board becomes a crew of yes-men. The best performing boards are mixed with many types of executives. For example, one financial expert should always be on a board along with a cyber expert. This ensures the board gets expert views from those angles.
The people you bring on board wants to represent your company, share your vision, and complement your weaknesses ” suggests the New Zealand Institute of Directors.
“These directors bring an outside perspective to the table and often a wealth of knowledge and experience. Non-executive directors’ principal role is to provide independent judgment. This includes:
- Outside experience and objectivity on all issues which come before the board
- Understanding detailed knowledge of the company’s business activities and on-going performance, so they can make informed decisions
- Recognizing the division between the board and management.
What all company directors responsibilities are
Executive and non-executive directors have the same:
- Legal duties
- Fiduciary obligations to the company. This means they must place the best interests of the company ahead of their own interests.
- Duty of care, which means that they must act as any ordinary, reasonable person under the same circumstances and
- Are both liable for the governance of the company personally and as a group
And all directors must work together to find a balance between conformance and performance, according to the Australian Institute of Directors.
Boards have a duty to oversee management and the company as a whole, assuring compliance – this is conformance. But performance is equally important: Evaluating strategy, resource allocation, value creation, talent management and other forward-looking issues.
For the executive directors, working closely with management, they develop their day-to-day perceptions of the company’s operations. For the non-executive director, based on different paradigms, based on his / her experience at other companies. The dialogue between these is a great board’s dynamic.
Board committees have usually been dominated by executive directors, but this is changing in Australia and New Zealand. For example, Australian Stock Exchange Listing Rule 12.8 provides a fee for the duration of that financial year year.
The role of the non-executive director has grown in importance, the board compensation to non-executive directors is improving.
Best Practices for Board Membership
The changes in the marketplace have generated some minor changes in best practices surrounding the demographics of board composition. The demand for non-executive directors has increased in recent years. The demand for non-executive directors has increased. Companies should work on developing business leaders so they can easily transition to non-executive director roles as they are near retirement. Non-executive director roles offer attractive professional development opportunities for pre-retirees and others.
Nominating and governance committees do their best work in recruiting non-executive directors when they first assess the current board’s skills, experience and expertise, as well as the need for diversity. Best practices so consider the nominating and governance committees should consider future needs of the company’s leadership when selecting board member nominees.
It’s also best practices for non-executive board directors to meet collectively without executive directors so they can discuss the performance and actions of executive management without having them present. This practice allows them to speak honestly and freely and without hesitation.
The Code states that remuneration policies and practices for non-executive directors should be clear and aligned with the corporation’s culture.
In summary, executive directors and non-executive directors serve on a board of directors. Board management software is an important tool that brings both types of directors together for secure collaborations and communications. Diligent Boards has a feature for granular permissions, which provides non-executive directors with the ability to communicate independently from the executive directors as necessary.
Executive directors and non-executive directors can work with board management software and governance.
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