What Are The Differences Between Executive And Non-Executive Directors?

A company is an artificial person managed by individuals known as directors. A group of individual directors is known as the board of directors. The board of directors is responsible for company management. The board of directors comprises executive and non-executive directors. The board of directors are collectively responsible for running a company’s business, both externally and internally. Executive and non-executive directors engage in high-level responsibilities and act in the company’s best interests. However, there is a difference between executive and non-executive directors, which is provided below.

Meaning of Executive Director

An executive director is a director involved in the company’s internal affairs. Executive directors are responsible for making decisions for the company and its future direction. They are entrusted with the responsibility of managing and running the company’s business, including development plans. It includes identifying long-term goals and developing strategies that complement the company’s financial capacity. They formulate and implement strategies which are cost-effective and time-efficient.

Usually, executive directors work in a senior capacity associated with functional areas and policy concerns of primary strategic importance. They are the employees of the company and part of the board of directors. They are full-time employees responsible for the day-to-day processes. They must have organisational skills to handle multiple tasks and prioritise tasks according to their importance.

Meaning of Non-Executive Director

Non-executive directors are external directors of a company. They are not involved in managing the company’s internal affairs but help make decisions around its plans and strategies. A non-executive director brings a different perspective to company decisions and helps to make an informed decision.

The non-executive directors are appointed based on their qualifications, such as experience and depth of knowledge, which allows the board to build contacts and get relevant insights. They are independent of the company’s management and stakeholders. Thus, they bring calibre, unbiased, objectivity and qualities to the board.

Importance of Non-Executive Directors

It is essential to have non-executive directors as they are external directors who bring objective insights to the company’s decisions and ensure that the board remains honest and loyal, especially when there is a conflict of interest. They also liaise between the company’s leadership team and external stakeholders, such as customers and investors.

Non-executive directors benefit the company as they are driven by the company’s best interests in mind and assist in monitoring activities without any bias. It helps to improve the overall quality of decision-making. They also bring the expertise required to enhance the performance of the business.

Duties of Executive and Non-Executive Directors

Generally, executive and non-executive directors have similar duties. They must comply with the duties set out in the Companies Act, 2013. The non-executive directors, just like executive directors, can be held liable for a breach of a director’s duty, such as a fiduciary duty. Below are the duties of executive and non-executive directors:

• Act with due diligence and care and exercise independent decision
• Act in good faith to promote the objectives of the company for benefitting its members and shareholders
• Should not attempt or achieve any advantage or undue gain
• Not disclosing confidential information and decision

Even though non-executive directors are not as involved in company management as executive directors, they are liable for breaching the above duties.

Difference Between Executive And Non-Executive Directors In India

The below table shows the difference between executive and non-executive board of directors:

The primary difference between an executive and a non-executive director is that an executive director has a higher role in terms of managing the company. Since the non-executive directors are external directors, they are independent of the company, and the responsibility of running the company is less compared to executive directors. An executive director is an internal boss, while a non-executive director is an external boss. Therefore, a non-executive director focuses on giving an objective view to help the executive directors make vital decisions.

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