{"id":515,"date":"2026-03-03T12:30:28","date_gmt":"2026-03-03T12:30:28","guid":{"rendered":"https:\/\/ruthfinch.com\/website\/?p=515"},"modified":"2026-03-03T12:30:28","modified_gmt":"2026-03-03T12:30:28","slug":"what-makes-an-effective-ned","status":"publish","type":"post","link":"https:\/\/ruthfinch.com\/website\/what-makes-an-effective-ned\/","title":{"rendered":"What makes an effective NED?"},"content":{"rendered":"<p>Non-executive directors \u2013 NEDs \u2013 are directors of a company who don\u2019t have management responsibilities<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a> and they play a critical part in holding management (including the executive directors) to account.<\/p>\n<p>A brief digression, first, on the different types of NEDs.<\/p>\n<ul>\n<li><strong><em>Independent non-executive directors<\/em><\/strong> \u2013 often referred to as <strong><em>INEDs<\/em><\/strong> \u2013 have no interest in or connection with the company except for the non-executive directorship. This is more than not having a conflict of interest. It\u2019s about independence on the part of the NED.<\/li>\n<li><strong><em>Shareholder-appointed NEDs<\/em><\/strong> are, as the name suggests, appointed by the parent \u2013 perhaps, at the instigation of the ultimate parent company in the group. Shareholder-appointed NEDs might have an executive role at the parent or another company within the group \u2013 perhaps, as an executive director \u2013 or they might be INEDs on the parent company\u2019s board. Generally, they won\u2019t be independent directors for the purposes of the subsidiary company\u2019s board because of their connection with the parent.<\/li>\n<li><strong><em>Investor NEDs<\/em><\/strong> are similar to shareholder-appointed NEDs but, rather than being appointed by the parent company, they\u2019re appointed by a significant investor, providing a voice for the investor on the board and a line of sight into the company and its oversight. They\u2019re generally found in start-ups and early-stage companies. Investor directors aren\u2019t considered to be INEDs because of the connection with the investor with the right to appoint them.<\/li>\n<\/ul>\n<p>Not all regulated firms have NEDs but banks, insurers and the larger firms (including enhanced scope firms under SMCR) will have some NEDs. For banks in particular, regulators will expect to see a majority of INEDs on the board and will scrutinise their independence.<\/p>\n<p>With those points in mind, I\u2019m setting out my views on what makes a NED of a regulated firm effective.<\/p>\n<p>1\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>The crucial importance of oversight and challenge<\/strong> \u2013 overseeing management and holding management to account are key responsibilities of a NED and providing effective challenge is at the heart of that. There\u2019s a separate note about boards, NEDs and challenge but I\u2019ve made this the first point in the list for a reason. A NED \u2013 and particularly an INED \u2013 who doesn\u2019t review management, probe and provide meaningful challenge is unlikely to be performing the role effectively.<\/p>\n<p>2\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>Know the business and know the regulatory landscape<\/strong> \u2013 NEDs don\u2019t need to know the business as well as management or regulation as well as the Compliance and other functions. However, a NED should have good and up-to-date knowledge of the business and a sound understanding of the current regulatory landscape and regulators\u2019 expectations.<\/p>\n<p>3\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>Devoting sufficient time to the role<\/strong> \u2013 this has become less of a concern in recent years but there have been cases of NEDs taking on too many appointments or other commitments and not having enough time for their role as NED. This might still arise where:<\/p>\n<ul>\n<li>The NED is a director of companies based in other jurisdictions and needs to attend board meetings in another country. Delays to travel plans and meetings called at short notice can result in a NED cutting it fine or even missing board meetings at the regulated firm.<\/li>\n<li>Although firms \u2013 and regulators \u2013 track other directorships, a NED might have trustee or other appointments outside the financial services sector that impinge on availability. These can include positions where there\u2019s no remuneration.<\/li>\n<li>Some NEDs still have executive roles at other organisations and commitments there can impact availability at the regulated firm, even with careful planning.<\/li>\n<li>A crisis at the regulated firm can require directors to be available for meetings outside the usual board schedule, with additional reading and points to consider too.<\/li>\n<\/ul>\n<p>4\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>Learning and development (L&amp;D) is a key part of the role<\/strong> \u2013 NEDs should expect to carry out firm-prescribed L&amp;D and self-identified L&amp;D activity. This will be driven by ongoing competency assessment and any points arising from the annual director performance review, but should also reflect the firm\u2019s strategy and risks, challenges, opportunities and initiatives arising from that.<\/p>\n<p>5\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>NEDs need to have a good working knowledge of all topics and be able to contribute to board discussions<\/strong> \u2013 I\u2019ve been at board meetings where it\u2019s clear that one or two NEDs are taking a back seat on a topic (e.g. the ICAAP; IT) because that isn\u2019t their strength and they know that other people on the board have deeper knowledge. Not being an expert is fine; taking a back seat isn\u2019t fine at all. NEDs will need to get up to speed on any topics where they\u2019re less comfortable or have less experience.<\/p>\n<p>6\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>Be willing to challenge the Chair<\/strong> \u2013 this one might sound strange but there are times when NEDs need to challenge the Chair. This could be the case where the Chair cuts off discussion, doesn\u2019t get through all agenda items (particularly if that happens on a regular basis), favours particular directors\u2019 views or gives them more time to speak at board meetings \u2013 or there might be other circumstances in which the Chair isn\u2019t acting appropriately. This should be rare but it does happen. Primary responsibility is with the senior independent director (SID) to sit down with the Chair and seek to resolve any issues but many firms with NEDs don\u2019t have a SID. In those circumstances, another NED (preferably, an INED) will need to step up.<\/p>\n<p>7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <strong>It helps to be personable<\/strong> \u2013 it\u2019s an obvious point, but NEDs need to work with other directors so the board, as a whole, can be effective. That involves being a team player but also striking the right balance to provide appropriate and effective challenge.<\/p>\n<p>&nbsp;<\/p>\n<p><em>This note is intended to provide general information about current and expected topics and perspectives that might be of interest. It does not provide or constitute, or purport to provide or constitute, advice relevant to any particular circumstances. Legal or other professional advice relevant to any particular circumstances should always be sought.<\/em><\/p>\n<p>&nbsp;<\/p>\n<p><em><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> I\u2019ve come across financial institutions that refer to NEDs as \u2018the directors\u2019 (with executive directors being referred to as \u2018management\u2019) and I\u2019ve also come across cases where executive directors are referred to as \u2018the directors\u2019, with non-executive directors being referred to as \u2018non-execs\u2019 or \u2018NEDs\u2019, distinct from \u2018the directors\u2019. Neither of these is correct and, to be clear, directors of a company can be executive directors (with management responsibilities) or non-executive directors (with no management responsibilities).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Non-executive directors \u2013 NEDs \u2013 are directors of a company who don\u2019t have management responsibilities[1] and they play a critical part in holding management (including the executive directors) to account. A brief digression, first, on the different types of NEDs. Independent non-executive directors \u2013 often referred to as INEDs \u2013 have no interest in or [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[163],"tags":[145,53,100,178,172,171,191,164,102,189],"class_list":["post-515","post","type-post","status-publish","format-standard","hentry","category-governance-reframed","tag-board","tag-board-effectiveness","tag-challenge","tag-directors","tag-independent-non-executive-directors","tag-ineds","tag-ned","tag-neds","tag-non-executive-directors","tag-senior-independent-director"],"_links":{"self":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/515","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/comments?post=515"}],"version-history":[{"count":2,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/515\/revisions"}],"predecessor-version":[{"id":517,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/515\/revisions\/517"}],"wp:attachment":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/media?parent=515"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/categories?post=515"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/tags?post=515"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}