IDsquared

At IDsquared we talk to a lot of people about recruiting Non-Executive Board members and everybody has a different way through the jargon.  Below are a list of words, phrases and abbreviations that you may hear along the way and which may, on first meeting seem somewhat opaque.  

NED - Non-Executive Director (that one’s an easy start)
NXD - (Also) Non-Executive Director
Non-Exec - (Obviously) Non-Executive Director
Independent Director - (Again) Non-Executive Director

(An aside: there is actually a subtle difference between a Non-Executive Director and an Independent Director but it is one that is often forgotten in the use of the words.  A Non-Exec is so only by virtue of the fact that they do not have an executive, day-to-day, function within the business - this is often an imprecise judgement itself, particularly in a small business.  There is no reason why a Non-Exec can not be a shareholder or be appointed by shareholders, customers, suppliers, or a parent company, indeed they often are.  An Independent Director, when the term is properly used, should be ’independent’ of all these interests, they should be appointed purely as a Non-Exec and have no other links or loyalties.  An Independent Director is usually appropriate only for a larger company where corporate governance is the main concern.)

Chairman - Can be either Executive or Non-Exec
Non-Executive Chairman - usually ‘Chairman’ is favoured for either Executive or Non-Exec
NEC - Non-Executive Chairman
NXC - For some reason, we rarely hear of NXCs but it would be a Non-Executive Chairman

Director - ultimately, all Executive Directors and all Non-Executive Directors carry the same responsibilities under the Companies Act; they are all just Directors and in that capacity at least, they are equal.

Fiduciary Responsibility - this is the duty owed by a ‘fiduciary’ (in this case the Director) to a ‘principal’ (in this case the company).  The legal details of this relationship are laid down in the Companies Act but most Directors will feel that there is also a moral or ethical element to the relationship as well.

Personal Indemnity Insurance - This is a fairly new form of insurance - we currently know of three insurers offering it (with considerable difference in prices!).  It is appropriate for a Director who has several Board posts and it replaces, or supplements, several policies in company names which might have diverse covers and terms. (Use the search on this page for more on this.)

This list is one to which we will add from time to time.  If you’ve ever been thrown by the language used in relation to the appointment of a Non-Executive Director or their duties, do please let us know and we’ll have a go at translating it.