Stepping back but not out: moving to a non-executive director role

At a glance

• Non-executive director (NED) roles can be a great option for SME owners when they exit their business. They can help you widen your leadership experience; stay fresh and motivated; give back to younger entrepreneurs; and prepare to semi-retire with one or more part-time roles.
• NED roles are usually part time and involve supporting the executive leadership team on strategic decisions, as well as ensuring the company complies with relevant laws and standards.
• The time requirements and pay for NEDs varies between companies. Typically, roles require two or three days per month and the average salary for a NED is £72,051².

What does a non-executive director do?

In the UK, a non-executive director (NED) is a company board member who does not hold a full-time, executive position or get involved in the daily running of the business. NEDs provide strategic advice and independent oversight to executive managers, and ensure the company is run in the best interests of shareholders and other stakeholders.

NEDs usually undertake tasks such as attending meetings, reviewing reports and advising executives. They use their experience to challenge and support strategic decisions and ensure the company complies with relevant laws, regulations, and ethical and corporate governance standards.

In the UK, NEDs and executive directors are subject to the same legal responsibilities, and can both be held accountable for the company’s actions. NEDs attend and can vote at board meetings, just as with other directors. They may also be members of board committees. 

What are the benefits of taking on a non-executive director role?

Working in a NED role at a different company from your own is a popular way to broaden leadership experience. This can help advance your career towards bigger leadership roles, such as chair of a larger company, or just help you understand how boards and corporate governance work in other companies.

A NED role can also give you different types of experience; for example, you can learn more about innovation at a technology start-up, or supply chains and risk management at a large manufacturing company.

Another popular reason is to start building multiple part-time roles – known as a portfolio career - with a view to moving away from the executive role in your current company or semi-retiring. NED positions can be a good way to step back from the daily pressures of running a company but keep your hand in and maintain a reasonable income.

Many NEDs also see the role as a way of giving back by using their experience to help younger or aspiring leaders in other companies.

Do non-executive directors get paid?

NEDs are usually paid for their time. How much they devote to their role varies according to the size and type of company, but they typically work two or three days a month. UK NED earnings start from a few thousand pounds a year, but according to executive-search firm Spencer Stuart, they can go up to £1.5 million a year for the highest-paid non-executive chairman¹. The average NED salary in 2022 was £72,051².

You may be able to find a NED role from within your network, but there are also companies that place people into NED roles. That can be a good route if you’re looking for a specific type of role or company.

Case study: working towards new goals

Paul Zanelli, Director of Strategic Ventures at transport consultancy and research firm TRL, started working as a NED for start-up technology firm 3D Repo in 2016. He studied the Certificate in Company Direction with the Institute of Directors to prepare and ensure he understood all the responsibilities involved.

“When I started as a non-executive director, I was looking to take on more senior leadership positions and get more experience of boards, as part of my ongoing career,” says Paul. “Plus, my main role is in innovation, research and development, so working with a technology start-up helps keep me fresh.

“The joy of it is being around young, enthusiastic people – scientists and engineers trying to change the world. It’s invigorating, keeps you motivated and gives you different perspectives, so you can look for fresh ways of doing things in your own business.

“Seven years on, I’m also starting to think about semi-retirement, and other NED roles may be part of that.”

The risks of being a non-executive director

Paul says it’s critical to understand the significant responsibilities of being a NED. “Some people don’t understand that NEDs’ responsibilities are the same as for other directors,” he says. “For example, small companies often have limited cash runways. As a director, you have a duty to ensure the business is a going concern and will have enough money to pay its suppliers. If you believe it isn’t a going concern, you must state that at board level or you can be held personally responsible.”

A further consideration is health and safety; directors who fail to fulfil their obligations in this area can be personally prosecuted.

Paul says another challenge can be maintaining independence and detachment from the business.

“Be careful not to get wrapped up in or dragged into daily operations,” he says. “For example, if you are mentoring others, be careful not to mix that mentoring role with your corporate responsibilities. You must also be careful not to get involved in sales. As an experienced businessperson, it’s common for a NED to make introductions to people in their network. But then you should not broker deals or attend sales meetings, for example. That could conflict with your corporate-governance role.

“Always set clear boundaries, document everything and disclose where you have conflicts of interest. It can be a hard balance because you're there to support the company as well as provide corporate governance.”

Choosing the right NED option for you

The roles you choose in semi-retirement depend on your goals. Start-ups can be exciting but are sometimes challenged for cash and might pay you partially in share options. If you need a role to fund semi-retirement, you might consider a more established company that pays a steady yearly salary.

Or you may be more concerned about giving back, in which case a NED at a third-sector organisation, such as a charity, might be appropriate.

What we can do

If you are considering non-executive directorship or changing your role, we can help you consider these options in the context of your overall personal finances. We can run cash-flow models to help you see when and how you might be able to semi-retire and how much you might need to earn from your NED roles.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.

Sources

^1,2Remuneration, 2022 UK Spencer Stuart Board Index, Spencer Stuart, accessed March 2022