The Blog

The Golden Triangle: Non-Executive Directors, Investors, and Good Governance

Mar 21, 2024 | Investors, TEA Insights

By Sarah Penney

Tonight, the TEA team will be in attendance at the prestigious Non-Executive Director Awards, set amidst the glamorous backdrop of Claridges hotel in London. 

You might wonder, what does an event like this have to do with the everyday concerns of investors like me? 

Well, these awards celebrate something profoundly impactful: the critical role of Non-Executive Directors (NEDs) in ensuring good governance within the companies they oversee. This is why our founder, Sheryl Cuisa, has dedicated her time in recent months to being a judge for these awards, using her position to advocate for good corporate governance, for the benefit of the investor.

One of the most important roles of a NED is encouraging positive engagement and communication between a company and its investors. With this in place, they can convey the benefits of the work they, and the company, are doing to ensure good governance and the responsible growth of your investment. 

Understanding and appreciating the significance of NEDs can offer valuable insights into the companies you invest in. Let’s delve into why.

NEDs, though not employed by the organisation, serve on a company’s board of directors. Their duties include providing independent advice, monitoring executive directors, and acting in the best interests of stakeholders.

At the heart of the Non-Executive Director Awards is the celebration of individuals who have gone above and beyond to ensure good governance in the organisations they oversee. But what should you, as an investor, be looking for in the NEDs of the companies you invest in?

  • Independent Oversight: NEDs should offer objective viewpoints, free from internal biases or conflicts of interest. This independence ensures that the board acts in the best interests of shareholders and stakeholders, providing a crucial check on executive management.
  • Strategic Guidance: Drawing from diverse backgrounds and expertise, great NEDs contribute valuable insights and strategic guidance to the board. Their fresh perspectives on critical issues such as corporate strategy, risk management, and succession planning help steer companies towards long-term sustainable growth.
  • Risk Management: In today’s volatile business environment, NEDs play a crucial role in making sure businesses don’t take unnecessary risks. They ensure there are sufficient controls and processes in place to avoid potential crises, which would threaten your investments. 
  • Enhanced Governance: NEDs are responsible for upholding high standards of corporate governance, ensuring there’s transparency, a high level of ethics, and making sure the company plays by the rules. A great NED will foster a culture of accountability and integrity, earning your trust as an investor.
  • Shareholder Representation: NEDs can also serve as a bridge between the board of a company its investors. They should make sure your concerns are heard and addressed, helping you to be more engaged in the business. 
  • Challenge and Support: NEDs actively challenge and support the executive team – they challenge them to innovate, to be accountable and increase the performance of the company.  Their constructive feedback and mentorship contribute to the company’s long-term success.
  • Board Diversity: NEDs bring diverse perspectives and experiences to the boardroom, enriching discussions and driving innovation. By promoting diversity, listed companies tap into a broader talent pool, better reflecting the diverse needs of their stakeholders and making better decisions.

Non-Executive Directors are a crucial part of the investing landscape, advocating for the interests of investors and improving engagement and communication between companies and individual investors. 

As retail investors, understanding the role of NEDs empowers us to make informed investment decisions. We’ll be eagerly taking notes at the awards tonight, highlighting the exemplary work of the winners and encouraging all public companies to uphold these high standards of governance.

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