Non-Executive Director

Reviewed by Anjaneyulu | Updated on Sep 30, 2020

Introduction

Non-executive director means a person who is not an executive director and not interested in the company's day-to-day operations. He or she is usually involved in planning and policymaking.

The non-executive directors are expected to oversee the performance of the executive directors and the management. They are typically held equally accountable to such regulatory provisions, such as tax laws as the executive directors.

The Companies Act

The Companies Act does not explicitly include the definition of 'Non-Executive Director'. We may construe it by understanding the concept of 'Executive Director' under Rule 2(k) of the Companies Rules 2014, as a full-time director as specified in clause (94) of section 2 of the act'.

To further clarify, a 'Whole Time Director' as defined under section 2 (94) of the Act reads as follows: "Whole Time Director includes a director in the whole-time employment of the company".

The above definitions of executive directors make it clear that a non-executive director is a director who is not a full-time director, i.e. a director who is not in the company's full-time role.

A Non-Executive Director is the most popular corporations' best-kept secret. Non-executive directors bring a wealth of expertise, tactics, experience, and connections to the company as a full-time appointment or through a temporary arrangement.

Such directors are also considered the custodians of the mechanism of governance since they are not active in the day-to-day running of the business and control the executive activities.

Roles and Responsibilities

It is well known that non-executive directors are not involved in the company's day-to-day operations. Hence, it is all the more important to understand what exactly are the functions and duties of a non-executive director and the obligations associated with it.

The companies' board and the non-executive directors need to understand and define the role of a non-executive director on the board of the company. They have to chalk out the responsibilities to be disposed of and the liabilities to be shared with them.

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