IS THERE A DIFFERENCE BETWEEN NON-EXECUTIVE INDEPENDENT DIRECTORS AND EXECUTIVE DIRECTORS?
A. Non-Executive Independent Director (NEID):
• NEID must be independent of the company’s management and not be involved in the day-to-day operations. They do not have any material financial or personal interest in the company that could compromise their objectivity.
• Their primary role is to provide oversight and act in the best interests of the shareholders as the guardians of corporate governance, ensuring that the company is run transparently, ethically, and in compliance with laws and regulations.
• NEID offer advice and bring an external perspective to the board’s decision-making process. They monitor the performance of the executive management and hold them accountable for their actions.
• They may serve on board committees, like audit, remuneration, and nomination committees, where they play a crucial role in ensuring transparency, accountability, and fairness.
B. Executive Director (ED):
• EDs are typically employees and are actively involved in the day-to-day operations and management. They may hold positions such as CEO, CFO, COO, or other executive roles. They are responsible for the execution of strategies, operations, and the achievement of objectives.
• Unlike NEIDs, EDs may have significant financial interests in the company, such as stock options, bonuses, or other compensation tied to the company’s performance.
Is there a difference in risk/ liabilities?
• Both owe a fiduciary duty to the company and its shareholders. This duty includes acting in the best interests of the company, avoiding conflicts of interest, and exercising due care, skill, and diligence in their roles.
• NEIDs are generally not involved in the day-to-day management however that preclude them from being held liable for breaches of fiduciary duty or negligence.
• EDs, on the other hand, are actively involved in the day-to-day operations and decision-making. They have a broader range of operational responsibilities. This can expose them to a higher level of liability for actions and decisions related to the company’s daily business operations. More is expected from an ED.
• Both NEIDs and EDs must ensure that the company complies with applicable laws and regulations. Failure to do so can result in legal liability. However, EDs are typically more directly involved in ensuring operational compliance with laws and regulations
It’s important for directors to check that the company provides indemnification provisions in the articles of association or contracts and insurance to protect directors in the course of their duties. However, the extent and terms of indemnification can vary, and directors may still be held personally liable in certain situations, particularly in cases of wilful misconduct or gross negligence.