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Difference bet. Non-executive and independent director

Rakesh Dhanuka (Company Secretary) (478 Points)

13 July 2010

Can someone tell me the difference between Non executive director and Independent director.

thanks in advance..

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vivek (CS) (751 Points)
Replied 13 July 2010

Executive Directors, Non Executive Directors and Independent non executive director

Executive Directors, Non Executive Directors and Independent non executive director

Executive Directors (Chief Executive Officers)

Executive director of a firm who is usually also its full time employee, and has a specified decision making role as director of finance, marketing, operations, etc., on an on-going basis. Standard of care required from executive directors is much higher than that required from non-executive directors, but both types of directors are equally liable under tax laws. Also called inside director or internal director.The chief executive officer has the overall, primary management and leadership role in the organisation. Therefore, the CEO must have extensive knowledge and skills in a wide variety of areas. There is no standard list of the major responsibilities carried out by a chief executive officer, however the list below outlines the most common. He Supports board members by advising and informing, going between board members and staff, and supporting the board's evaluation of chief executive. He Oversees design, marketing, promotion, delivery and quality of programs, products and services. He oversee Financial, Tax, Risk and Facilities Management and Recommends an annual budget for Board approval and then manages resources within the budget. In addition to this he Oversees the management of the human resources team ensuring that they comply with current laws and regulations. The executive director ensures that the venture is seen in a positive light from outsiders. In addition oversees fundraising planning and implementation.

Who is a Non-Executive Director?

Non-working director of a firm who is not an executive director and, therefore, does not participate in the day-to-day management of the firm. He or she is usually involved in planning and policy making, and is sometimes included to lend prestige to the firm due to his or her standing in the community. Non-executive directors are expected to monitor and challenge the performance of the executive directors and the management, and to take a determined stand in the interests of the firm and its stakeholders. They are generally held equally liable as the executive directors under certain statutory requirements such as tax laws. Also called external director, independent director, or outside director.A non-executive’s role is less hands-on. A non-executive director may have less experience and less knowledge than an executive. However, the benefit here is that a non-executive can bring objectivity and an external awareness to the board. Non-executive directors are not usually involved with day-to-day management, however, the smaller the company, the more likely it is that there will be some hands-on work. The non-executive’s role is an over-viewer and whistle blower, ensuring adherence to good practice, respect for the interests of other stakeholders and adherence to the process of boardroom discipline. Non-executives are often thought of as “advisers” although this is not the case. The role is larger than this – the non-exec is a director and shares the legal duties and responsibilities of the executive directors. As far as corporate governance is concerned, non-executives are usually associated with Independence and may be self employed.

What is meant by an Independent Non-Executive Director?

The following characteristics are indicative of a state of independence

· The individual is not an employee of the company but perhaps self employed;

· The individual is not a professional advisor;

· Individual is not a supplier or customer of the company;

· The individual does not have a family connection with someone in the business;

· The individual’s directorship is for a fixed term and accordingly he is less likely to be motivated by self-preservation when taking decisions;

· The individual does not depend so heavily on his remuneration from the company as to make resignation difficult.

Difference

The basic difference is that an Executive Director work full time for the company & are usually employee of the company but Non executive Director does not work full time for the company. They are usually Professionals who give advice to Companies in their area of expertise. The term Executive Director has not been defined in the Companies Act though it is commonly used. The provisions of appointment & removal are same for both (except for WTD/MD).

As regards salary, Section 309 fixes the %age for payment of salary to Executive directors & Schedule XIII provides for payment of salary incase co. is having inadequate or no profits. This section also provides the %age for salary for Non executive Directors at 1% in case co. has WTD/MD & at 3% in case co. has no WTD/MD.