Before becoming a NED

Before becoming a NED


NEDs, particularly in the regulated financial services sector, have become more prominent in the recent past. Regulatory bodies have, increasingly, come to regard NEDs as critical in exercising checks and balances upon their executive colleagues on the Board.

According to the Institute of Directors, the role of the NED is to provide a creative contribution to the Board by providing objective criticism. NEDs should bring independent judgement to bear on issues of strategy, performance and resources, which extend to matters such as key appointments and standards of conduct.

NEDs have exactly the same status under the law as, and share unlimited liability with, their fellow Executive Directors, even though it is all but impossible for them to have the same level and depth of familiarity with the business as their full time Executive colleagues. If they are genuinely independent, NEDs normally receive far less remuneration than their Executive colleagues. Time commitments can also be fairly onerous if Board participation is allied to serving on one or more Board Committees.

In particular, the significance of personal risk should not be underestimated. In the event of failure, regulators are increasingly indicating that there will be a “presumption of guilt of negligence among all Board members, unless it can be proved to the contrary.

So, why would anybody wish to become a NED? The answer, like many of the issues addressed in this Information Bank, is not necessarily cut and dried. A variety of reasons exist, but the more common ones in the insurance industry are:

  • Towards the end of their careers, or at the beginning of retirement, those with managerial experience wish to remain involved with the corporate world
  • Some find that becoming a NED provides an opportunity to give something back to the industry Appointment as a NED may supplement income or provide financial resources to enable the pursuit of other non-corporate activities
  • Working as a NED can be satisfying and rewarding from an intellectual perspective Some may argue that it enhances self-esteem
  • Others will confirm that they derive considerable satisfaction from contributing to the success of a commercial enterprise
  • Some people construct portfolios of NED appointments that, in total, can be quite stimulating and challenging, providing diverse interest across a range of businesses

Emphasis today, tends to be more on continuing as a professional within the insurance industry, albeit part time, rather than on simply “giving something back.” The role of being a NED in the regulated sector should not be construed as a retirement hobby.

For aspiring NEDs thinking of doing it “for the money they need to be aware that NED remuneration is normally by way of a fixed annual fee, although some firms supplement this with “per meeting attendance fees. Chairmanship of the Board or a committee usually attracts a higher fee. The roles of the Chair are discussed more fully below.

While a portfolio of three or more non-Executive Directorships may involve total remuneration running into six figures, it will rarely reach the annual salary level, with bonuses, of a very senior manager in the insurance industry. Additionally, of course, for independent NEDs, their remuneration will not normally involve any incentive compensation, stock awards or benefits such as health insurance and pension contributions.

However, not all senior people who have the career background and gravitas to become a NED necessarily possess the requisite personality, attributes and skills. So, if you do wish to become a NED, the next question should be your starting point.

Institute of Directors Factsheet

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