What is a non-executive director (NED)?
- Romesh Jeyaseelanayagam
- Aug 11
- 5 min read
For startups, scale-ups, and SMEs
In the fast-paced, resource-stretched world of startups, scale-ups, and small-to-medium enterprises (SMEs), the term non-executive director (NED) might sound like something reserved for large corporate boards.
Don’t be fooled - bringing the right non-executive director into your business can be one of the smartest, highest impact moves a founder or leadership team can make.
We hear you ask:
The FD consultant dives into the answers below.
What exactly is a NED (a non-executive director)?
A non-executive director (NED) is a board member who does not work in the business day-to-day. An NED is a person from outside the company who offers independent advice and challenge.
Unlike executive directors, such as a CEO, COO or CFO, non-executives are not involved in operational decision-making. They don’t manage teams or handle internal projects.
Instead, they provide independent oversight, strategic guidance, and objective
challenge at the board level.
In smaller businesses, where founders or leadership teams often wear multiple hats and run at full speed, an NED brings perspective, experience, and a steady hand.
In your business, think of them as a sounding board, an early warning system, and a corporate conscience all rolled into one.
Why is a non-executive director especially valuable for early-stage and growing businesses?
While the responsibilities of an NED in a large corporation often focus on governance and compliance, in startups, scale-ups and SMEs, the role can be much more hands-on strategically. But a NED will still maintain an independent stance.
The key ways an NED adds value are:
1. Strategic guidance without taking the wheel
In a startup or a growing business, it’s easy to get lost in the weeds.
Non-executive directors step back and help to ask the bigger questions:
Is the business still aligned with the mission?
Is this product roadmap commercially viable?
Is the business scaling too fast or not fast enough?
An NED does not run the business; instead, they assist a business owner in managing it more effectively.
2. Challenge and accountability from a NED
Founders often have deep vision and passion - but sometimes limited experience in
governance or risk management. A good NED will challenge assumptions, flag
blind spots, and keep the team accountable to the business’s strategic goals.
A non-executive director is the person who asks:
What’s our Plan B if this deal falls through?
Are we thinking enough about customer churn?
Do we have the right team for the next stage of growth?
Constructive pressure like this is invaluable when you’re moving fast.
3. Governance and credibility
Even small companies need basic governance structures referring to the framework of rules, roles, responsibilities, and processes by which a company is directed and controlled.
Governance ensures accountability, fairness, and transparency in a company’s relationship with its stakeholders (such as shareholders, employees, customers, and regulators).
Investors, grant funders, and key partners often look at the board to assess whether a business is being run responsibly. A strong non-executive director brings credibility and maturity, which can unlock capital or improve stakeholder trust.
In regulated industries or when dealing with public contracts, having an experienced
NED can also help you navigate compliance obligations.
4. Network and doors opened
Unlike a traditional business adviser, a well-connected non-executive director may open doors by offering introductions to:
Investors or venture capitalists.
Strategic partnerships or customer leads.
Trusted suppliers and advisors.
Future team members.
Connections are particularly powerful in scale-ups that need to break into new markets, raise investment or build a team.
5. Mentoring the founders and executive team
Many non-executive directors take on a coaching role—supporting founders as they transition from startup mode to CEO-level leadership.
A NED mentors a team by offering independent, strategic guidance and acting as a sounding board—without becoming involved in day-to-day operations.
Whether it’s managing the board, preparing for investment rounds, or hiring another board member, their insight often comes from having been there before.
Provide a strategic perspective by offering an outside view. Help the team think long-term, see beyond daily operations, and understand how their work connects to the larger business goals.
Encourage critical thinking by asking thoughtful questions. Challenge leaders to check their assumptions, explore different solutions, and carefully weigh risks against rewards.
Share experiences and lessons from other businesses to support the growth of team members in leadership roles.
Develop leadership skills by observing the team in board or strategic meetings to identify strengths and gaps in leadership.
Non-executive directors vs. mentors, coaches, and advisors
Why choose a non-executive director over a business mentor, coach or advisor?
A mentor may be informal and not involved in governance.
A coach helps with personal or leadership development.
An advisor offers expertise in a specific area (like marketing or finance), but doesn’t have a formal governance role.
A non-executive director is legally part of your board of directors, sharing responsibility for how the company is run.
Responsibility means they have fiduciary duties; they’re there not just to support you, but to act in the best interests of the company, and sometimes that means making tough calls.
Do startups and SMEs really need NEDs?
Not every micro-business needs a board right away - but if you’re a growing startup, fundraising, scaling teams, or dealing with increasing complexity, a non-executive director can be a game-changer.
When will my business be ready for a non-executive director?
Telltale signs your business is ready for a non-executive director:
You’re raising external investment or already have investors.
Your founding team lacks experience in some critical areas, e.g. finance,
compliance, scaling operations.
You want a strategic challenge and an outside perspective.
You’re building toward a sale, IPO, or acquisition.
You’re forming a formal board or need to improve how it works.
Even one strong NED can elevate how your board operates and improve long-term outcomes.
What makes a great NED for a startup or SME?
The ideal non-executive for a smaller business is practical, strategic, and adaptable—not just someone with a fancy CV.
Key qualities of a non-executive director include:
Relevant experience, e.g. they’ve scaled a company, raised money, sold a
business.
Strong communication skills – they listen well and know when to speak up.
Cultural fit – they respect the company’s values, energy, and stage of growth.
Constructive challenge – they push, without overpowering the founder’s vision.
Time and commitment – you want someone who will show up.
Can an NED function be performed informally?
Formal non-executive directors are typically appointed to the board of directors, the group of people who are legally responsible for overseeing a business and making sure it’s being run properly.
A NED might commit one or two days per month, including board meetings, prep, and ad hoc support.
More informally, an SME may look to build an advisory board, which is not the official board of directors, but which contains one or more advisors who perform an informal non-executive director role to the management team, meeting with them regularly to provide hands-off support.
So, yes, a non-executive director (NED) function can be performed informally via an advisory position, but it’s what they cannot do that is important - they cannot:
Use the title of director unless they are officially appointed.
Make official decisions for the company.
Be seen as a full board member without proper paperwork.
Access confidential board information unless agreed upon.
If you want someone to act like a NED but keep it simple:
Call them a “Board Advisor” instead of an NED.
Have a clear agreement or advisory letter to outline their role.
Make it clear they are not legally responsible for decisions.
Our final thoughts on non-executive directors
In the world of startups and growing businesses, it’s tempting to focus only on product, sales, and survival. But building the proper governance and leadership support early on pays dividends.
A strong non-executive director doesn’t slow you down—they help you make better decisions, avoid common pitfalls, and grow with confidence.
Whether you’re navigating your first funding round or scaling into new markets, the right non-executive director isn’t just a board member—they’re a trusted ally in your business growth journey.
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