Non-executive director

Also called NED, Advisory board, Board

A director who is not involved in day-to-day management, brought in for perspective and challenge.

What it means

A non-executive director sits on the board and shares the same legal duties and liabilities as any other director, but does not run the business day to day.

An advisory board is different: advisers with no directors' duties and no legal responsibility, which also means less accountability.

Why it matters

The most common failure in owner-managed businesses is the absence of anyone who will disagree. A NED provides challenge from someone with no career risk in doing so.

They also bring relationships and experience of transitions the owner has not been through — a first large hire, a funding round, a sale.

What it looks like in practice

Be clear what you are appointing them for, and for how long. One or two days a month is typical for a small company.

Appoint for the gap you actually have. A NED with sector experience and a NED who has sold three businesses are different appointments.

Formalise it: a letter of appointment, a term, and remuneration in fees or a small equity stake.

What to watch out for

The liability. A NED carries full directors' duties including on wrongful trading, and good candidates will ask about directors' and officers' insurance.

Appointing a friend. Comfort is the opposite of the point.

Where to get proper advice

The Institute of Directors and regional NED networks. Your accountant and solicitor often know suitable people.