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NEDs Carry Can for Lack of Diligence

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

When a company proposed new contracts for two of its senior directors, the non-executive directors (NEDs) on the board were sent drafts of the new contracts for review.

The company’s solicitors were then instructed to finalise the contracts. The NEDs had failed to note, however, that the new contracts not only released one of the directors from a non-compete clause which had been included in his previous contract, but also provided both directors with the right to bonuses potentially worth up to a total of £8 million.

The NEDs had also failed to refer the contracts to the company’s remuneration committee for consideration.

The High Court laid the blame for the errors firmly at the door of the NEDs, who had failed to consider properly the advice they received from the company’s solicitors, had not been diligent in scrutinising the relevant paperwork and had not given adequate consideration to the implications of the revised contracts.

NEDs have an important role to play in many companies and have rights and responsibilities which are no different from those of ‘main board’ directors. When they fail in their duties, they can, and often are, held to account.

For advice on your responsibilities and your rights as an NED, contact Clare Towers.

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