Firms need non-executive directors to succeed

The non-executive directors help the company to maintain a high level of integrity and ethics. PHOTO | SHUTTERSTOCK

Directors are crucial for any business, whether they are registered or not. There are several types of business associations, including sole proprietorships, partnerships, companies, NGOs and societies. Companies are the main type of business required by law to have a board of directors. However, all types of business ought to have a board due to its benefits.

Directors play a crucial role in the success of any business. In most firms, the shareholders and directors are the same. However, in public or listed companies, the directors may include a mix of owners and non-owners.

Directors act in trust for the shareholders, meaning that their role is to look out for the best interests of the shareholders. They manage the company on behalf of the owners to maximise and attain shareholder value.

There are many classes of directors. Directors who have a direct interest in the company and work in the business on a full-time basis are known as executive directors. Those not fully engaged in the business but only attend board meetings are non-executive directors. Non-executive directors are also not shareholders and have no direct link to the business. They are brought into the board of directors mostly for their skill, expertise and experience.

It is highly recommended to get non-executive directors (NEDs) for several reasons. They play a crucial oversight role over the executive directors. Lately, there has been a strong push for non-executive directors in many boards due to their oversight role. They oversee the activities of executive directors and hold them accountable. NEDs sit in crucial board committees, for example, audit. Audit issues and queries are best handled by independent directors who do not have a direct interest. In the financial services sector, it is recommended to have a NED as the chair of the board due to their independence and oversight function.

The NEDs help the company to maintain a high level of integrity and ethics. As watchdogs NEDs watch other directors and can report to shareholders.

Other than expertise, the NEDs also bring on board their skill and expertise. They give the company access to diverse skills and expertise. It is recommended to have a board that is diverse in skill set to maximise performance. NEDS often serve as advisors to the board in as much as they are also members of the board.

They often give expert advice to the board. They boost business performance with strategic guidance and advice, especially from industry perspectives. They understand the market well and can give an external perspective to the company, enriching the insight of executive directors.

In some industries, NEDs give stakeholder perspectives, especially where they represent group interests. For example, some state corporations require representation from members of professional associations such as the Law Society of Kenya. NEDs are therefore able to give stakeholder views to the company.

In choosing the right NED, consider the skill set needed. It is recommended to have a diverse skill set for better board performance.

Ms Mputhia is the founder of C Mputhia Advocates | [email protected]

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