What you need to know about being a Non-Executive Director (NED) in the UK

The Board of Directors occupies a critical position within a UK company, serving as the ultimate decision-making body and steward of the company's long-term success. This paper delves into the core governance roles and responsibilities entrusted to the board, exploring the legal framework, best practices, and recent developments shaping board governance in the UK.

In the UK, company directors hold a position of trust, bound by fiduciary duties to act in the company's best interests. This means prioritizing the company's long-term success over personal gain. Core duties include the duty of care, requiring informed decision-making, and the duty of loyalty, preventing conflicts of interest and self-dealing. Directors must also avoid taking benefits from third parties without disclosure and declare any personal interests in company transactions. These responsibilities ensure the board acts with integrity and safeguards the company's well-being.

Being appointed to a Board

For Profit appointments

In the UK, shareholders typically hold the power to appoint board members, with the annual general meeting (AGM) being the most common venue. The directors themselves can also make appointments, but these need shareholder approval later. There's some flexibility, as companies can delegate selection to a committee or use personal connections, though shareholder endorsement remains a key step.

Not-for-profit appointments

Not-for-profit organizations in the UK have more freedom in appointing board members. The specific process can vary depending on the organization's governing documents. It often involves existing board members identifying and recruiting candidates with relevant skills and experience to fill vacancies.? While elections by members might occur in some cases, appointments are more common, ensuring the board has a strong composition to achieve its charitable goals.

Public Interest appointments

Selecting public interest board members in the UK emphasizes merit and transparency. Government ministers hold ultimate decision power, but rely on Advisory Assessment Panels to evaluate candidates. These panels include departmental officials, independent members, and sometimes a representative from the public body itself. The panels assess candidates against set criteria and submit recommendations to the minister, who makes the final call based on merit. This system aims to ensure public interest boards have qualified individuals who can contribute effectively.

Statutory Duties and the UK Corporate Governance Code

The Companies Act 2006[1] lays the foundation for directors' duties in the UK. These duties are codified in Section 172[2] and emphasize acting in good faith, promoting the company's success, exercising independent judgment, and upholding a duty of care[3] and skill.

Beyond statutory duties, the UK Corporate Governance Code[4] (the Code) provides a framework for good corporate governance practices. The 2024 iteration of the Code focuses on five key pillars:

• Board Leadership and Company Purpose: This section emphasizes defining the company's purpose, fostering a culture of integrity, and ensuring board effectiveness.
• Division of Responsibilities: The Code advocates for a clear division of responsibilities between the board and executive management, with the board setting strategy and overseeing its execution.
• Composition, Succession and Evaluation: The Code promotes building a diverse and competent board, with robust processes for director appointment, succession planning, and regular board evaluation.
• Audit, Risk and Internal Control: This section underlines the importance of a strong risk management framework, robust internal controls, and effective audit processes.
• Remuneration: The discuses incentivizing long-term success, and how executive pay should be directly tied to a company's strategy, purpose, and achieving its long-term goals.

Core Governance Responsibilities

Building on these frameworks, the board shoulders a range of governance responsibilities:

• Strategic Direction: The board sets the company's long-term vision, defines its strategic objectives, and approves major capital expenditures and acquisitions.
• Financial Oversight: The board oversees the company's financial performance, reviews budgets and financial statements, and ensures the integrity of financial reporting.
• Risk Management: The board establishes a risk management framework to identify, assess, and mitigate potential risks that could threaten the company's success.
• Board Composition and Succession Planning: The board ensures its composition reflects a diverse range of skills, experience, and implements a robust plan for director succession.
• Corporate Governance: The board ensures the company adheres to good corporate governance practices as outlined in the Code and relevant regulations.
• Stakeholder Engagement: While primarily accountable to shareholders, increasingly, boards also recognize the importance of other stakeholders, such as employees, customers, and the broader community.

Developments in Board Governance

The landscape of board governance in the UK is constantly evolving. Here are some noteworthy trends:

• Focus on ESG (Environmental, Social, and Governance) Issues: Boards are placing greater emphasis on ESG factors, integrating sustainability considerations into their strategies and decision-making.
• Board Diversity and Inclusion: The importance of diversity on boards, encompassing gender, ethnicity, and other dimensions, which are receiving heightened attention, aiming for boards that better reflect the society they operate in.
• Enhanced Board Effectiveness: Emphasis is placed on strengthening board effectiveness through regular evaluations, director training, and fostering a culture of open communication within the boardroom.
• Technological Disruption: Boards are increasingly recognizing the need to adapt their governance practices to keep pace with technological advancements and the evolving business landscape.

Training Opportunities

Directors in the UK have a plethora of training opportunities to hone their governance skills and stay abreast of best practices. The Institute of Directors (IoD)[5] ?and the Chartered Governance Institute UK (CGI UK)[6] offer a range of courses on topics like directors' duties, board composition, risk management, and effective boardroom dynamics. Many universities and private training providers also deliver specialized programs on corporate governance. Additionally, workshops tailored to specific industry sectors or company needs can be procured. These programs equip directors with the knowledge and tools necessary to navigate the complexities of their roles and contribute to effective corporate governance.

Consequences

Failing to fulfil their governance role can expose UK directors to a range of personal consequences. These can be legal, financial, and reputational. Breaches of statutory duties, such as negligence or failing to prevent financial reporting fraud, can lead to disqualification from acting as a director or even criminal prosecution. Directors may also face civil lawsuits from stakeholders who have suffered losses due to board failings. Furthermore, negative publicity surrounding governance failures can severely damage a director's reputation, impacting their future career prospects. The prospect of these consequences serves as a strong incentive for directors to take their governance role seriously.

It is important to note, while an individual Director may (or may not) hold executive powers delegated to them by company charter, by the Board, or by the Companies Act, "The Board" acts as a body. This means absent specific delegated powers and actions by a Director; the Board holds collective responsibility for its actions or inactions.?

Benefits

Serving on a board offers a compelling range of professional benefits for individual directors, such aa the opportunity to work with others in charting direction for a company. This is a chance to use personal and professional experience in a more collaborative environment. Also, board positions enhance a director's credibility and reputation within the business community. Directors gain valuable experience in strategic decision-making, financial oversight, and risk management, all of which are highly sought-after skills.

Conclusion

The Board of Directors plays a pivotal role in shaping the UK's corporate landscape. By effectively discharging their governance responsibilities, boards can ensure companies operate ethically, sustainably, and deliver long-term value for all stakeholders. The evolving regulatory landscape and growing stakeholder expectations demand that boards continuously adapt and enhance their governance practices to navigate the complexities of the modern business environment.

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[1] https://www.legislation.gov.uk/ukpga/2006/46/contents

[2] https://www.legislation.gov.uk/ukpga/2006/46/section/172

[3] https://www.gov.uk/government/publications/voluntary-guidelines-on-the-duty-of-care

[4] https://media.frc.org.uk/documents/UK_Corporate_Governance_Code_2024_ofM100g.pdf (Effective 2025)

[5] https://www.iod.com/professional-development/

[6] https://www.cgi.org.uk/professional-development