The King III Report recommends that the board of directors comprises executive, non-executive and independent non-executive directors. This Deloitte guide discusses the differences between the different types of directors, and provides definitions and criteria for each director category. Show
The different types of directorsThe King III Report recommends that the board of directors comprises executive, non-executive and independent non-executive directors. This Deloitte guide discusses the differences between the different types of directors, and provides definitions and criteria for each director category. Did you find this useful?Recommendations
Directors of a company have a large degree of responsibility when it comes to running things, both internally and externally. Some companies will have executive directors and non-executive directors (NEDs). While both types of directors engage in high-level responsibilities to act in the best interests of the company, there are some key differences between the two. It’s important to understand these differences so that you can ensure you’re running your company properly, and each director is executing their decisions and responsibilities in compliance with the relevant laws. What Is An Executive Director?An executive director is best described as the director involved in the internal affairs of the company. They are technically employees of the company, and sit on the board of directors. An executive director is usually responsible for making key decisions for the companies direction moving forward. This could include developing strategies and identifying long-term goals that complement the company’s financial capacity. What Is A Non-Executive Director?A non-executive director has similar duties to an executive director, however, they are more external to the company (we cover these key differences in more detail below). They aren’t as involved in managing the company’s internal affairs, but they help make key decisions around the company’s strategies and plans. Since they’re ‘external’ to the company, it’s a good opportunity to invite objectivity and valuable insight to the company’s key decisions. In other words, a non-executive director offers a different perspective so the company can make good, informed decisions. What Are The Main Differences?The main difference between an executive and a non-executive director is that an executive director is of a higher level in terms of management. A good way to differentiate between the two is to look at the executive director as the internal boss, and the non-executive director as an external boss. Let’s look at a brief summary of these differences.
Now that we’ve gone through a summary of the differences, let’s look at these features in a little more depth. Roles And ResponsibilitiesExecutive directors manage the company and develop relevant strategies for growth, whereas a non-executive director provides relevant and valuable insights based on their expertise to assist in policy development and decision-making. So, a NED is an independent director that assists the executive directors in managing the company, but they don’t have the authority to engage in the same level of management. A good way to look at it is that an executive director is internal, whereas an NED is external. Therefore, an NED focuses on providing objective assistance to help the internal executive director make the bigger decisions. EmploymentExecutive directors are part of the board, and are also full-time employees. This means they receive all the relevant employment benefits and a salary. However, an NED is not an employee. They are independent of the company (self-employed), therefore they receive a service fee. IndependenceNon-executive directors are not expected to devote all of their time to the company’s affairs. They provide valuable advice and assistance for internal decision-making, but they are not required to be present all the time. This is also because NEDs are external directors and independent of the company, so the responsibility of running the company falls less on them and more on the executive (internal) directors. Why Have An NED?Having an NED is beneficial for the company because an executive director is internal, meaning they are likely to be driven by the best interests of the company. Like we mentioned before, NEDs bring fresh and objective insight into the company and assist in monitoring activities with less risk of bias. This helps improve the quality of decision-making overall. They also bring with them the expertise that is required to improve business performance. What About Directors Duties?You might be wondering, ‘if executive directors and non-executive directors are different, are they both still subject to directors duties?’ Generally speaking, both executive directors and NEDs have very similar duties and liabilities. So, the simple answer here is yes. Both types of directors need to comply with the duties set out in the Corporations Act 2001 (Cth). Like executive directors, NEDs will be held liable for any breach of a director’s duty, such as a fiduciary duty. Some other duties include:
Even though an NED is not as involved as an executive director, they will still be liable for breaching any of the above duties. We’ve written more about the personal liabilities of company directors here. Need Help?Managing a company is always a lot easier if you have the right people guiding you. If you need help appointing directors or if you have any questions about your company structure, Sprintlaw has friendly and experienced lawyers that can help you through the legal processes involved!
 Rowan is the Content Coordinator at Sprintlaw. She is studying law and psychology with a background in insurtech and brand experience, and now helps Sprintlaw help small businesses Capital Raising for Startups – MasterclassJoin experts from Sprintlaw and Cake Equity to learn how to simplify, accelerate and nail the capital raising process. This presentation will cover the pros and cons of different raise types (equity, convertibles, SAFEs), key deal terms and raise documents, and other raising tips and tricks.
12:30 - 1:30 PM AEDT REGISTER Capital Raising for Startups – Masterclass Join experts from Sprintlaw and Cake Equity to learn how to simplify, accelerate and nail the capital raising process. This presentation will cover the pros and cons of different raise types (equity, convertibles, SAFEs), key deal terms and raise documents, and other raising tips and tricks. Wed, 9 November 12:30 - 1:30 PM AEDT REGISTER Need legal help? We'll get back to you within 1 business day. What is the difference between an executive and nonThere's no legal distinction between non-executive directors (NEDs) and executive directors. However, in practice, NEDs are fundamentally 'outsiders' to a company, detached from day-to-day operations and valued for their objective insight.
Which one of the following is the most valid difference between executive and nonThe essential characteristic of an executive director is his or her discharge, usually as an employee, of executive functions in the management and administration of the company. Non-executive directors are usually independent of corporate management.
What is the difference between nonA non-executive director may be representing a major shareholder but an independent director will generally have no other links with the company other than sitting on the board. Non-executive directors' principal role is to provide independent judgement.
Which director is not an executive of the company?Key Takeaways. A non-executive director is a member of a company's board of directors who is not part of the executive team. This director typically does not engage in the day-to-day management of the organization but is involved in policymaking and planning exercises.
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Which one of the following is not a valid difference between executive and non-executive directors?
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