A number of people have asked me to write on this subject, which I have been reluctant to do for fear of it sounding self-serving. I do after all make a living from holding such positions.

Having said this, I realise that the time has come for us to at least consider the subject.

What then is an independent non-executive director? Many people talk of non-executive directors (NEDs) when they really mean independent NEDs. More of this later. A non-executive director is a director who is not an employee of the company and is usually part time. Their legal duties, responsibilities and potential liabilities as a director are the same as those for an executive director in their capacity as a director. Of course an executive director has other responsibilities as an employee of the company. As written in a previous article, NEDs should not stray in to the day to day management of the company, but they are expected to make creative contributions through constructive input. As they are not employees of the company, they are in a position to offer objective views in the board’s deliberations. This objectivity will stem from the breadth of their previously gained experience or in some cases from their specialist knowledge, for which they have been appointed.

So, how do they deliver this objectivity without causing damaging tension in the boardroom? The short answer is ‘carefully’. Openness and trust are key features of a successful board. The executive directors have to understand and feel confident that the NED has no agenda other than the success of the company. Similarly, the NEDs must understand that decisions made by the board may have an impact on the executive director’s livelihood.

So, a spirit of partnership and mutual respect needs to be engendered and in so doing, the NEDs will feel able to bring a different perspective by both supporting and constructively challenging the management team. Uncomfortable at times, but necessary if the NED is to bring value to her or his position.

A much worse danger is having NEDs who do nothing to challenge management and who accept everything that is presented. Does this happen? You bet your cotton socks it does!

According to the Higgs Review in the UK in 2003, NEDs need to be sound in judgment and to have an inquiring mind. They should question intelligently, debate constructively, challenge rigorously and decide dispassionately. And they should listen sensitively to the views of others, inside and outside of the board.

And as if that wasn’t enough, the UK Corporate Governance Code 2012 states:

“NEDs should scrutinise the performance of management in meeting agreed goals and objectives and monitor reporting performance. They should satisfy themselves on the integrity of the financial information and that financial controls and systems of risk management are robust and defensible.”

Some jurisdictions set out who can be regarded as independent and go further by recommending for instance, that certain committees, such as the audit and remuneration committees be made up of solely or largely independent NEDs.

The UK Corporate Governance Code 2012 states that a company must describe why it considers an NED independent if the NED:

• Has been an employee of the company in the last five years.

• Has had a material business relationship with the company in the last three years.

• Has received or receives additional compensation from the company, apart from director’s fees.

• Has close family ties with the company’s directors, senior employees or advisers.

• Holds cross directorships or has significant links with other directors through involvement in other companies or bodies.

• Represents a significant shareholder.

• Has served on the board for more than five years.

The guidance under this code is that at least half of the board of large companies should be independent NEDs and for smaller companies at least two directors should be independent NEDs.

Now, I realise that we aren’t governed by this code but it was developed as it made good sense, and companies would be well advised to adopt these principles for the benefit gained.

So — challenging, fair, objective, no agenda and sensitive, to which we then add knowledge of the business, being conversant with the elements of strategy creation, able to provide leadership and capable of understanding the finances of the company.

And where does one find such talented people?

The Institute of Directors — Bermuda Branch has recently surveyed its 150-plus members and from that established a list of those who are prepared to be considered as an independent NED. Access to this list is tightly controlled but can be obtained by applying to iodbda.nxdd@gmail.com.

I am sure, should the need arise, that you will find suitable candidates on this list.

If not, just ask a friend or your brother (only kidding!).

Roger Gillett is chairman of the Institute of Directors - Bermuda.