Whether you're an aspiring portfolio professional, or a first-time founder looking for expert support for your business, understanding the fundamental differences between non-executive directors (NEDs) and Advisors can be a little confusing.
The broad similarities between the two types of role can make it difficult to decide which role is right for you, or as a founder, whether you'd like to build a team that contains both. In this blog, we’ll look at the key differences between the two so you can decide what best suits your aims.
What is an NED?
An NED is an independent advisor who sits on the board of directors. An NED is not an employee of the company they are advising for, and instead is generally contracted externally for a certain period of time.
NEDs often lead on less specific areas such as governance, strategy and even mentoring the senior leadership team. Becoming an NED is about transferring the executive skillset (thinking operationally, as the Head of HR for instance) to the non-executive skillset (thinking strategically, advising on areas like diversity and inclusion in the context of governance and stakeholder relations).
Their scope of work on the board of directors will focus on working in the interests of corporate stakeholders, alongside having strategic oversight of the company from an objective point of view, providing an insight which is not disturbed by any potential conflict of interest.
What is an advisor?
An advisor works within the business, utilising strong knowledge within a specific department, providing guidance, ideas, and key insightful awareness to organisations.
Advisors are frequently brought in on a quasi-consultancy capacity to tackle a specific issue or weakness within the senior leadership team.
These individuals do not make any decisions, but simply share their expertise to allow decision-makers within a company to create new opportunities, solve problems, and move their business forward.
So, they sound pretty similar. This is the difficulty with NEDs and advisors: many people seem to struggle to tell the difference and therefore which would be most appropriate. What are the main differences?
1. Location within the business
A key difference between NEDs and Advisors is the location within the business in which each of these roles operate, alongside their scope of work. NEDs work explicitly on the main board of directors, not being involved in what goes on within the main functions of the business.
The role of NEDs exists as one of long-term oversight, providing unbiased advice surrounding the effective running of an organisation at an executive level to benefit the interests of corporate stakeholders, as well as the business. Contrastingly, advisors work within specific business areas to stimulate suggestions for growth and change as, when, and where it suits business requirements.
The general working agreement of an NED in comparison to an advisor similarly presents differences. An NED is often recruited into this position externally on a rolling-term contract, chosen for their precise expert knowledge, experience and their ability to provide strategic insights.
Thus, NEDs tend to exist as more impartial assets to a business, able to provide insightful, objective advice over a longer period of time.
Advisors, on the other hand, tend to more often be employed as internal staff members, chosen for their ability to improve and advise on one area of the business. They’re less impartial, there to drive growth and knowledge within a department.
NEDs, as non-regular directors on the board and without much influence on the day-to-day running of the organisation, typically only work a couple of days a month. This is due to their relatively narrow scope of work, which centres around attending and contributing to board meetings, focused on the commercial side of business.
On the other hand, advisors can be appointed externally or be contracted internally within the business to an advisory board, and sit at a very different point within the business to that of an NED.
As advisors do not get involved in governing a company and instead direct their advice into the actual operations of a business, their work can be utilised on a much more malleable and short-term basis. This comes as opposed to NEDs overlooking the executive running of a business over a longer period, instead supporting a business through periods of difficulty, or stimulating growth.
4. Size of company
Due to the nature of the roles, with NEDs sitting on a board, they generally work in larger companies that require the oversight and leadership provided by a board. For startups, there may only be one founder and as little as four or five colleagues, so an NED may not be so appropriate. This is where advisors are useful.
Which one is right for me?
Each business – their needs, ideas for growth, and problems – is unique. There cannot be a simple formula or a ‘one size fits all’ approach to deciding whether an NED or advisor is best to help a business grow.
However, a good starting point for deciding which type of support may best suit the needs of a business can be reached through analysing the most basic factors of an organisation.
For example, a smaller, start-up organisation may not have a main board. Therefore, placing an NED within a company without a board may not prove the most useful. In this scenario, an advisor may be best fit to help spur a business’ fundamental growth.
A larger, more well-established business may find it useful to have an NED, who views the company from an objective angle, to ensure their organisation is running as effectively as desired and in the best interests of corporate stakeholders.
If you’re interested in becoming either an advisor or an NED, it’s simple. Look at the differentiators between them and decide which holds more appeal. Does your position within the company matter or does the amount of authority you can assert within the company count? Do you want to focus solely on the commercial aspects of a business or perhaps you can provide advice on a specific area? Your answers to these questions will determine the right way forward for you.
Where do I find them?
If you’re looking to become an advisor/NED, or you’re looking for an advisor/NED to support your business, you’ll find them right here on Connectd. Our Smart Matching Technology partners advisors with startups based on their needs and wants.