Non-executive directors (NEDs) are often described as the cornerstone of modern corporate governance. Their role is to provide independent oversight, challenge the executive team, and contribute external experience to strategic decision-making. In theory, this makes them an essential counterweight to executive directors. In practice, however, their impact varies significantly.
In 2025, boards are under greater scrutiny than ever before. Shareholders, regulators, and the public expect directors to be active guardians of transparency and accountability. Against this backdrop, the question arises: are non-executive directors living up to the hype, or has their reputation been overstated?
Hype versus reality: do NEDs add real value?
For many businesses, the appointment of a high-profile NED can feel like a win. Well-known names bring prestige, and the association may reassure investors. But the true measure of value lies not in profile, but in contribution. A director who attends meetings without offering meaningful input provides little more than symbolic assurance
The reality is that some NEDs deliver genuine strategic benefit, while others remain passive figures. A strong NED should be able to challenge management constructively, test assumptions, and highlight risks before they escalate. Unfortunately, boards sometimes confuse reputation with effectiveness. That gap between perception and real influence has led to criticism that non-executive directors may be overrated.
The hidden risks: understanding NED liability
One of the least appreciated aspects of the role is the legal exposure it carries for NEDs. NEDs can be held personally accountable for corporate failings, even where they were not directly involved in the misconduct. Boards would be wise to acknowledge and help mitigate this risk.
Consider a situation where financial controls are weak, or compliance procedures are ignored. If a NED fails to raise concerns or ask the right questions, they may share responsibility for any resulting breach. Courts and regulators increasingly expect non-executive directors to act as active participants, not passive observers.
The risk is compounded by the fact that many NEDs treat the position as part-time. They may sit on multiple boards, sometimes without fully grasping the detail of each business. The law, however, makes little distinction: duties apply equally to executives and non-executives. This mismatch between perception and obligation creates a real source of personal risk.
Choosing the right NED: expertise over prestige
For companies seeking to strengthen governance, the solution lies in choosing NEDs for their expertise, not their reputation. Industry-specific knowledge, regulatory awareness, or deep financial acumen can all add measurable value. A director who understands the business model is far better placed to spot weaknesses and guide strategy.
By contrast, appointing individuals for symbolic or political reasons can weaken the board. A ceremonial presence may look impressive in annual reports but offers little practical benefit. The strongest boards are those where non-executive directors are respected for their substance, not just their names.
Boards should also ensure that NEDs are given the information and resources to perform their role properly. Without access to accurate data and open discussions, even the most capable director cannot provide effective oversight.
How lawyers can help protect NEDs
Lawyers play a vital role in helping companies and non-executive directors strike the right balance between accountability and protection. From the outset, legal advisers can draft contracts that clearly define responsibilities, negotiate indemnities, and secure appropriate insurance cover.
Directors’ and officers’ insurance, for example, can provide essential protection against claims. Legal advice can also help establish clear governance frameworks, ensuring that NEDs know what is expected of them and how to discharge their duties safely.
For individuals considering a NED position, seeking legal advice before accepting is wise. Understanding the scope of NED liability, and the protections available, allows them to make informed decisions and avoid unpleasant surprises later.
A balanced view for 2025
Non-executive directors remain an important feature of corporate governance in 2025, but their value is not automatic. Some are little more than ceremonial figures, while others provide crucial independent oversight. The key lies in careful selection and effective support.
By choosing directors with relevant expertise and providing them with strong legal protections, companies can unlock the true benefits of NEDs. At the same time, recognising the reality of NED liability helps ensure that the role is taken seriously. The message is clear: non-executive directors are most effective when substance matters more than status, and when governance structures are designed to let them succeed.
If you are a NED, or have questions or concerns about a NED, please contact Jaan Larner.