The right mix of director types can enhance governance, improve decision-making, bolster stakeholder confidence, and may even improve financial performance.

This article explores the distinct roles played by executive directors, group non-executive directors and independent non-executive directors on the board, and outlines key considerations associated with each type of director as organisations seek to achieve a balanced and effective board.

Executive directors

An executive director is a member of the board who also holds a senior management role within the entity, combining strategic oversight with day-to-day operational responsibility and owing statutory duties to act in the best interests of the entity while executing its business plan.

Role of an executive director

• Operational insight: Executive directors possess deep real-time knowledge of the business, enabling them to provide context-rich input into board discussions.
• Strategic implementation: They are directly accountable for executing the entity’s strategy, making their attendance at board meetings important for alignment between planning and execution.
• Bridge function: Executive directors serve as a conduit between the board and the executive management team, facilitating communication and cohesion.

Considerations

• Conflicts of interest: The dual role of executive director can create tension between oversight and execution. Boards must be cautious not to appoint too many executives as it can blur their role at board meetings, between a fully-fledged director and an employee reporting to the board on their own area of executive responsibility.
• Loss of strategic focus: Too many executive directors on a board may result in a reduced level of independent strategic scrutiny and a narrowing of focus by the board.
• Dilution of independence: The greater the proportion of executive directors on the board, the greater the risk that independent non-executive directors may not speak up or their views may not be heeded.
• Reporting lines: Other executives who are not executive directors, such as the COO, CRO, and CCO, should report periodically to the board, ensuring transparency and independent oversight.

Group non-executive directors

A group non-executive director is an individual appointed to the board of a subsidiary entity while employed elsewhere within the group, owing full statutory duties to the subsidiary despite their primary role within the wider organisation.

Key traits of group non-executive directors

• Group-level insight: These directors typically have in-depth knowledge of group policies, systems, structures, and have a greater awareness of the internal dynamics at play. They can play a vital role in helping to navigate the wider group, particularly where a local initiative or decision may have a knock-on impact on other group subsidiaries or affiliated entities, and vice versa.
• Escalation pathways: Their position enables them to raise concerns to higher levels within the corporate group.
• Industry experience: Many bring direct sectoral expertise, adding value to strategic discussions. This can be particularly useful if the experience and/or expertise required is scarce locally.

Considerations

• Training ground: In some corporate structures, group executives are appointed to subsidiary boards as part of group succession planning or leadership development.
• Independence challenges: Group non-executive directors may be perceived as representatives of the shareholder rather than stewards of the local entity’s interests. This can lead to undue influence and insufficient local oversight.
• Appointment process: This can be driven by the group rather than the local nomination committee or chair, which can disrupt continuity and skills balance.

Independent non-executive directors

An independent non-executive director is a board member who is not part of the entity’s executive management and has no material relationship with the business, so that they can provide objective oversight, challenge decisions, and contribute independent judgment in the interests of the entity and its stakeholders.

Core attributes of independent non-executive directors

• Strategic oversight: Independent non-executive directors bring with them an independent and objective perspective, which can enhance the board’s decision-making process, and can lead to the refinement of strategy and the mitigation of risk.
• External insights and knowledge: Their broader industry and professional experience allow them to provide valuable insights and can facilitate the benchmarking of performance and the adoption of best practices.
• Unbiased judgement: Free from internal affiliations, they offer impartiality and enhanced objectivity.
• Governance strength: They should reinforce ethical standards and regulatory compliance.
• Credibility: Their presence signals integrity to investors, regulators, and other stakeholders.

Considerations

• Relevant experience: While some may lack direct sectoral knowledge, they often bring complementary skills in areas such as finance, law, technology, risk management, or governance.
• Time commitment: Many independent non-executive directors hold multiple board roles, so capacity and availability on appointment and periodically thereafter must be assessed.
• Networks: Their professional and personal connections, and the knowledge that they can obtain through that network, can be valuable assets.
• Cost: They are typically a more expensive option, but their insights into governance and industry best-practices often justify the investment.

Why board composition matters

An effective board is not simply a collection of qualified individuals. It is a carefully curated team designed to provide oversight, challenge, and strategic direction. The composition of the board directly influences its ability to fulfil these functions.

Key benefits of a balanced board

• Balance of power: Prevents executive dominance and encourages robust debate.
• Governance quality: Enhances oversight, accountability, and risk management.
• Diversity of thought: Helps to prevent ‘groupthink’ and ensures multiple perspectives and views are considered as part of the decision-making process.
• Stakeholder confidence: Demonstrates transparency and integrity to investors, regulators, and the public.
• Access to skills: Combines operational, strategic, financial, and sector-specific expertise.
• Regulatory compliance: Many jurisdictions mandate a minimum number of independent directors, particularly in regulated sectors such as financial services.

This is the second article in our ‘Elevating Governance’ series. Read the first article of the series here: Setting the boundary between board and executive management.

For more information, please contact any member of our Governance and Consulting Services Group.