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Non-executive director’s letter of appointment FAQs

Non-executive Director’s Letter of Appointment is a letter to appoint a non-executive director of a company who is not involved in the company’s day-to-day management.

A non-executive director is a board member but not part of the executive team.

Similar to a Director’s Service Agreement, a Non-executive Director’s (NED) Letter of Appointment sets out the duties of the director following their appointment to the post.

Contrary to a Director’s Service Agreement, the engagement under a Non-executive Director’s Letter of Appointment is not an employment relationship.

What is the difference between an executive and a non-executive director?

Essentially, an Executive director is appointed by a board of members for day-to-day business operations and management. 

Conversely, a non-executive director won’t look after daily business operations or executive tasks. A non-executive director is not a company employee. However, both roles have the same legal duties and responsibilities for the growth of an organisation.

The primary role of appointing a non-executive director is to provide creative feedback by observing the external business environment without prejudice.

What are the responsibilities of a non-executive director?

Non-executive directors are responsible for organisational policymaking activities, evaluating the performances of management teams and building professional relations and contacts with the external business environment.

They also act as an independent advisor who works entirely for the betterment of the organisation.

Non-executive directors also help executive directors by providing them with various business insights and ensuring that executive directors can meet their objectives.

How are Non-Executive Directors Appointed?

A company’s article of association governs the entire process of appointing a NED. In some companies, the board can appoint a Non-Executive Director. However, they need the shareholders’ approval at their next annual general meeting (AGM).

Following this, a letter confirming the initial term of the NED should be drafted.

Conclusion

In summary, drafting a simple contract outlining the terms of appointing a non-executive director quickly ensures good corporate governance.  

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