PwC’s recent non-executive director (NED) remuneration survey in the funds industry found that the number of NEDs that have entered the industry has increased since the financial crisis took hold. More than 40% of those surveyed have been in the role for less than 5 years, 24% have served on a board for less than one year, and 26% have 6 to 10 years’ experience. The survey also showed that the longer the length of service the higher the remuneration received by NEDs and that the increase on the supply side has resulted in a downward trend in the reward levels for NEDs taking on new directorships in the funds industry.
However, at the same time there is a mis-alignment between the risk being taken on and the reward being offered. The role of the NED has definitely evolved, and the pace of the change has increased. The focus of investors has increased along with their expectations. This is coming through in the due diligence process which institutional investors are undertaking before investing. Regulators’ expectations on the roles that NEDs play have also increased. As a result, the role of the NED has changed and has become much more challenging.

Designated functions
One of the most contentious trends which has emerged in recent years is the appointment of NEDs as the responsible person for designated functions on the boards of UCITS management companies and AIFMs. Some NEDs have started to question the apparent conflict between the collective responsibility of the board of a company under company law and the appointment of individual directors to designated functions. What would happen if something goes wrong? What would the Irish courts look at? Would a NED who took on several designated functions be treated differently to an executive director?

Responsibility
The question of how far the NED responsible for the designated function needs to go is also unclear in the minds of some NEDs. One NED recently observed to me that the most dangerous position to be in is to have the responsibility for something without the power and resources to control it and that, in some cases, NEDs that take on the responsibility for designated functions may not have sufficient ability to adequately exercise control over the performance of the function. Ultimately whether NEDs take on these roles will depend on the risk appetite of the NED in question.

Independence
It can be dangerous to take up executive roles when acting as a NED and careful consideration is necessary including any potential impact on your personal brand. Any designated functions taken on should be clearly defined. You should ensure that you fully understand the risk. You need to be clear as to what is needed, that you have the support from the organisation, including resources. Most importantly also, by taking on executive type roles you need to ensure that your independence is not blurred.
There can be many 'grey' areas and it can be a tough balancing act. When taking up an independent NED role, staying on the outside is important. You need to remember that you are there for the investors.