Non-executive directors: duties and responsibilities

The recent case of Secretary of State for Business, Energy and Industrial Strategy v Selby and others [2021] has illustrated that the standard of conduct applied to a director also applies and is upheld in regards to a non-executive director (NED) even where an NED does not play an active role in the day-to-day decisions and management of a company. In this particular case, the NED’s failure to adequately research and investigate basic information on the 28 deals that led to a significant increase in turnover and continued delegating of matters to the other directors were considered to be an abrogation of the NED’s duty to the company.

Whilst the CA 2006 does not make an explicit distinction between the duties of an executive director and NED’s, the court emphasised that both roles assume the same responsibilities. Furthermore, if the NED involved has particular experience and qualifications, the standard of responsibility is increased. In this case, the NED breached his duties as he should have made thorough investigations and co-operated diligently with HMRC.

This case has provided a timely reminder to directors of their duties generally and confirmation that executive directors and NED are largely judged by the same standards.