Directors — executive or non-executive — play an important role within any organisation, and the notion that one role holds a higher status than the other couldn’t be further from the truth. You can find both types of director on a board, and both have legal responsibilities.
The main difference between these two roles is in the type of responsibilities they have. You’ll find a full list of directors’ responsibilities, obligations, and liabilities in the provisions of The Companies Act 2006.
Below we’ll explore closely the main differences between these two types of directors. We’ll also share some insights on how best you can progress your professional development as an executive or non-executive director.
Executive vs non-executive: similar but not the same
There are lots of similarities between the executive and non-executive directors (NEDs), but the one thing that distinguishes an executive from a non-executive one is that an executive director is actually an employee within the company. As part of their remit, they’ll have day-to-day functions, targets, and key deliverables, and will occupy a leadership role within the organisation.
In terms of remuneration, executive directors are compensated similarly to employees, often with a salary proportional to the organisation’s corporate culture — as outlined in the UK Corporate Governance Code. This is slightly different from the remuneration terms and conditions for non-executive directors, who will receive remuneration based on the organisation’s size, their time obligations, and the complexity of the activities they’re overseeing.
Note that professional advisors can be an executive director on one board and be a non-executive director on the board of a subsidiary. The only exception to this dual competence is if the holder of this role has managerial responsibilities for the subsidiary organisation.
It’s a dual competence that provides some exciting career opportunities. We’ve designed our courses to help shape the career trajectories of both executive directors and non-executive directors, which we’ll discuss later.
Differing responsibilities and functions
Decision-making is one major differentiating factor between the two roles. Executive directors must manage and lead their teams or departments, in addition to serving on the board of directors. They’re accountable to the board.
This differs from the non-executive directors (NEDs), who make strategic decisions that drive the organisation forward and meet overall business objectives. These directors aren’t responsible for the day-to-day management of teams or departments and don’t perform daily functions within the business, whereas executive directors are and do because they’re direct employees of the organisation.
We’ve distinguished between ‘executive’ and ‘non-executive’. However, executive directors can fall into further categories, such as managing directors or financial directors. These directors oversee their respective departments and provide a strategic vision for the broader teams to follow.
Now that you understand the key differences between these two types of directors better, we can look more closely at the roles and responsibilities of executive and non-executive directors.
What is an executive director?
An executive director is a person who sits on a board of directors but also performs managerial duties within the business. They’re an employee of the organisation and must oversee and manage their department’s outputs and performance, as well as create and implement strategies to grow the organisation.
Executive directors must also make strategic decisions to help the organisation reach some of its wider aims. Expansion is one such objective.
An executive director will report to the board, which will include other senior stakeholders. Some of these will be more senior executives within the organisation, such as the chief financial officer (CFO), the managing director (MD)/chief financial officer (CFO) and/or the chairperson.
What is a non-executive director?
A non-executive director is a person who is a member of the board of directors but not an employee of the organisation. They’re appointed to the board via a letter of appointment. They must act within the best interest of the organisation’s stakeholders and the board. They don’t have any day-to-day responsibilities or BAU functions within the organisation.
NEDs offer a unique perspective that allows for unbiased, strategic decision making, often challenging more senior roles within the board and overseeing the executive management. These people also offer support and mentorship to senior management teams.
To provide this, they must have developed a very strong leadership style and be exceptionally confident in their decision-making and strategic capabilities.
How In Professional Development (INPD) can help
Regardless of your current position, if you have career ambitions to fill the role of an executive or non-executive director, you must possess the right skills, experience, and abilities to carry out your duties successfully.
Organisations appoint NEDs for their unique skills and perspectives. They expect these directors to always act in the best interest of the organisation’s stakeholders. The board of directors will assess the applicant to determine whether they hold the right experience and knowledge for the role. One of the best ways to ensure you not only meet, but exceed the expectations of this assessment, is to upskill yourself through a specialised programme, such as our non-executive director’s development programme.
If you’re applying for an executive directorship, you must be able to demonstrate leadership qualities and the ability to overcome challenges. You’ll also need to illustrate your understanding of the legal responsibilities of the role entails. Our director’s development programme will support you in learning how to effectively deal with the demands of this role and nurture your success through the years.
We’re committed to supporting you on your professional journey and would love to hear from you. Contact us today to learn more about our professional development courses and how they can benefit your career progression.
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