Who can be an NED or trustee?
NEDs are often in the news.
They are sometimes seen as people who take advantage of contacts and networks forged during their career to earn good money for little work. Although it is often true that NED positions are filled by members of such networks, the fact is that many are brought in to bring about change to internal governance and restore shareholder value. Many companies understandably value their commercial experience and understanding of the political and economic landscape.
The informal networks from which many NEDs are drawn often seem difficult to break into and one may wonder whether NED positions are limited to a circle of elites or available only to those with personal connections. Is a directorship just a well-paid reward for years of looking after vested interests?
The truth may be that people who are already exposed to boards in their day jobs are more likely to see these opportunities. Sometimes, NEDs join the board to provide strategic oversight but end up working as a full time employee. Just look at easyJet, which in September 2016 announced that one of its NEDs had been appointed chief operating officer. Of course, many businesses like having experienced captains of industries and ex-politicians on the board. Who better to understand how to open doors, interpret policy and relish the cut and thrust of the boardroom?
Baron Young of Graffham, a businessman with a series of NED roles, asserted that part-time NEDs are fighting a losing battle with management. In effect, he thought the role should be abolished. ‘Some [NEDs] are on a dozen or more boards - often in businesses they have no experience of, or ever worked in’, he said. ‘All they can do at best is judge what management tells them. If management is not too forthcoming [with information for NEDs], they can never even know [that there are problems or challenges], until it is far too late’.
He also thought that all board directors should be full-time with transparency about appointments. ‘This will end the charade of “you come on my board and I will go on yours” - or rather, “you come on my remuneration committee and I go on yours”.’
There are ways that we can challenge this
Despite the questions and criticisms, good governance and transparent recruitment structures can provide valuable opportunities for companies and prospective NED candidates.
Who can be an NED or trustee?
If you are reading this article, you are taking the right steps to find out how to become an NED. Anyone over the age of 16 years can (in theory) qualify to be an NED. In practice, you need to have the right skills. If you are an ACCA member, you will be of a calibre that companies will appreciate and welcome. Any concerns about background checks or fitness to practice can be assuaged by your ACCA membership. ACCA emphasises professional values, ethics and governance, and of course, as an ACCA member, you will already appreciate the role of NEDs under company law.
What is the difference between an NED and a trustee?
‘NED’ is the term used to describe a director of a company who is not a full-time or part-time employee or holder of an executive office. The NED role can vary depending on the size and type of organisation, but an NED is often expected to act as an independent adviser or, in some cases, a sounding board for management and NEDs’ importance should not be underestimated. Furthermore, NEDs have a special role to play in the promotion of good governance (and, in the UK, in compliance with the Corporate Governance Code) by providing oversight of management.
A trustee, in the non-profit sector, is someone who sits on a board, which collectively is responsible for the general control and management of the organisation, so the role is more involved[FF1] than that of a typical NED. Therefore, it is important to understand the role that the not-for-profit organisation requires and how the board is structured. This article will not discuss aspects specific to trustees, which will be covered in a different article. Like NEDs, trustees often attend several meetings per year, reviewing papers, being involved in certain activities or committees and taking part in strategic decisions.
What’s the difference between a non-executive and an ordinary director?
In UK law, there really is no distinction, and some would argue that this should not be changed. Nonetheless, it is understood that NEDs are not required to perform the same types of function and are less involved in making operational decisions because that might diminish their capacity to provide oversight.
Any director may be disqualified or removed for a number of reasons. These include what one would expect, such as fraud, negligence, misconduct or other lack of fitness for the role. Usually, it is for the board to have a procedure to monitor its directors and take disciplinary action where necessary. If the disqualification were on the basis of a criminal offence, the case would come to court and the disqualification could last for up to 15 years, and that would be after the director concerned had paid any fines or served a prison sentence for committing a serious offence, such as fraud!
What is an NED expected to do?
Overall, NEDs are expected to act in the best interests of the company. Whatever your role, be it accountant or financial adviser on a board, as an NED you would have a duty to:
- promote the success of the company
- exercise independent judgement
- exercise reasonable care, skill and diligence*
- avoid conflicts of interest*
- refuse to accept benefits from third parties
- declare any interest in a proposed transaction or arrangement
- contribute to the company’s strategic plans.
Melanie Proffitt, an ACCA member with a wealth of experience, who sits as an independent governor of a college as well as on ACCA’s Council, goes further. She says that ‘Many boards also want access to your contacts’, be it for other board roles, investment, or fundraising. She goes on add that ‘More importantly, they want your experience and knowledge of other sectors or businesses’.
The UK Financial Reporting Council provides useful information on the role of NEDs on boards in its UK Corporate Governance Code (revised 201), supplemented by Guidance on Board Effectiveness (2011). In many countries, there are similar codes and guidance documents, although many are addressed to the boards of listed companies.
What skills are required?
All the qualities that you bring as an ACCA member will be of value:
- work to high ethical standards
- act with integrity and probity
- monitor conduct
- maintain your independence
- understanding of the sector or industry (but this is by no means essential).
Mark Wearden, an ACCA member and NED of two companies, believes that NEDs must also bring their incisiveness and a sense of humour. ‘Rising above the operational politics is vital. Thinking conceptually and having the ability to challenge is also of value, and these will come naturally with experience and confidence’. He also notes that ‘the development of those skills can be useful for your CV and job prospects, and also show employers that you can take on new ideas and have different business perspectives’.
How much time will it take?
This will depend on the nature of the role and the type of company, so this can vary hugely. This is something you will have to ask, though for some advertised roles the advertisement will already state what type of commitment is required. There may be papers to review, meetings to attend, and travel. It is easy to underestimate – and you will need to consider whether you are able to dedicate the time and commitment required for the position. Melanie Proffitt advises that you should discuss this with the company. ‘It’s not just the meetings, but also other committees and activities and events which you will have to commit to, in order to do the job properly’, she says.
What would you need to find out when discussing opportunities?
- How much you will be paid (whether it is fixed or dependent on activities or attendance): not all NED and trustee positions are paid but the experience and satisfactions that you gain may be priceless. See [link to another article in the series in which NEDs talk about the rewarding experiences].
- Is the role for a fixed period or open ended?
- What professional indemnity insurance will you need?
- Outside interests: there may be certain areas in which you are interested in being involved. Since you are not expected to be involved in the day-to-day operations, your pre-required knowledge may not be as onerous as when you are going for an executive position.
- What is the scope of the expected work: each organisation is different?
- You need to know the company’s financial exposure, as shown by its balance sheet, assets and cash flow.
- What induction and future training can you expect?
- When will you meet other managers and staff?
- You will need to understand how decisions are made and other governance factors.
About the author
Brian Morrison is a solicitor in the Corporate Assurance department of ACCA. Brian has a background in non-profit law and has advised trustees and directors on the responsibilities, and the benefits, of being part of a company’s governance . He has also sat as a trustee on a charity board. Corporate Assurance comprises specialists committed to providing high-quality advice and guidance on the law, contracts, insurance and commercial matters; internal audit; information security; risk management; and continuous improvement.
This article is part of ACCA's NED and trustee advice series
ACCA accountants have a key role to play as NEDs and trustees across all sectors – public, private and voluntary – as they can contribute hugely to ensuring viability and good stewardship of assets. The ACCA Professional Insights team has developed this series of articles to help ACCA members become NEDs or trustees, in what can be a challenging process. So, whether you are a senior manager looking to further your career or are considering giving something back, this series of articles will give you the advice you need to help you find your feet.
If you found this article interesting please read some of the others in our series:
- Cyber Security for non-executives
- The six conversations every board should be having
- Ethical requirements for non-executive directors and trustees
- Financial reporting and auditing for NEDs
- How to become a NED
- What are board committees and their functions?
Or watch the videos in our series:
- How to become a NED by Japheth Katto
- How to become a NED by Paul Tsang
- Board diversity in Norway by Turid Solvang
If you are interested in finding an NED or trustee role why not start by searching ACCA Careers Job Board for relevant positions.