Non-executive directors (NEDs) are facing increasing expectations and scrutiny in today’s complex and volatile business world. Traditionally responsible for overseeing strategy, execution, and capital allocation, NEDs are now also expected to handle compliance, risk, remuneration, sustainability, cyber security, and AI issues. This shift in responsibilities has raised concerns among stakeholders, including Swedish investors like Cevian, who hold a significant stake in Smith & Nephew (SN.).

A recent report by Cevian and Willis Towers Watson highlights the need for NEDs to dedicate more time to their roles. The report suggests that higher fees for NEDs could incentivize more qualified individuals to take on these positions. Currently, many FTSE 100 NEDs serve on multiple boards, leading to concerns about overboarding. The report recommends limiting NEDs to serving on three or fewer boards to ensure they can devote sufficient time and attention to each company.

Furthermore, the report emphasizes the global nature of board recruitment, with many UK companies seeking international expertise to fill skill gaps. It notes that UK NEDs lag behind their counterparts in the US and Switzerland, who receive shares in addition to fees. To attract top talent and enhance shareholder value, the report proposes doubling NEDs’ fees by offering shares equivalent to their cash compensation, with a minimum holding period of five years.

While financial compensation is important, the report also highlights the non-monetary incentives that drive NEDs. A survey by KPMG found that reputation and new challenges are key motivators for NEDs, outweighing monetary rewards. However, concerns about potential conflicts of interest arise when NEDs are awarded shares in the companies they oversee. The report suggests that the structure of share awards should address these concerns by delaying the receipt of shares and ensuring independence and long-term focus.

As boards strive to balance diversity and expertise, the evolving role of NEDs in areas like AI presents ongoing challenges. The Cevian report underscores the importance of reevaluating NEDs’ fees to attract and retain top talent while maintaining effective governance. By addressing these issues, boards can ensure they have the right balance of skills and expertise to navigate the complexities of the modern business landscape.