A peek at non-executive directors, guardians of governance

In the intricate world of governance, where decisions shape the destiny of companies, funds and financial markets, we find a group of unsung heroes known as non-executive directors (NEDs). 

Think of them as wise overseers with a wealth of experience from various industries who bring a fresh, objective perspective to the boardroom table. As guardians of governance, their primary job is to oversee delegated functions and scrutinise key decisions to ensure the company is being run well and in the best interest of its shareholders. 

These individuals, often overlooked in the spotlight of corporate affairs, play a pivotal role in bringing knowledge of the local regulatory environment, and providing invaluable insights for strategic decision-making. But there’s more to that. 

So, buckle up as we set sail in this blog on the sea of knowledge for an enlightening journey to unravel the mysteries surrounding NEDs, who are a vital presence in the boardroom. 

What’s the role of a non-executive director? 

At the centre of the matter lies the question: What exactly does a NED do and why does the boardroom need one? To answer this, we share insights from Mike Delano, Asset & Wealth Management Leader at PwC Luxembourg, who shed light on the nuanced responsibilities that accompany this role.  

First, think of the boardroom as an orchestra stage where executives and non-executives alike play crucial roles in the corporate symphony. Legally speaking, these two roles and their responsibilities are cut from the same cloth, regardless of whether they’re sipping coffee in the executive wing or navigating the boardroom, or whether they are acting as director at the board of a Management Company (ManCo) or of another entity within the group. 

This explanation underscores the fundamental premise that regardless of executive or non-executive status, directors shoulder the weighty responsibility of understanding rules and ensuring adherence to ethical standards. While legal distinctions may blur, the essence remains thus: Understanding regulatory frameworks, navigating market dynamics, and ensuring compliance with unwavering diligence.  

So, what sets executives and non-executives apart? Contrary to executive directors, NEDs typically don’t engage in the company’s day-to-day management and operational decisions but provide independent oversight, strategic advice, and governance. To keep themselves abreast of the ever-evolving regulatory landscape, NEDs possess a secret weapon: Relentless vigilance and a penchant for continuous learning.  

If you have read this far, you might be convinced that NEDs are valuable assets for any company that wants to thrive in a complex and competitive environment. But just in case, we share below more reasons why NEDs are worth having on your board. 

What do NEDs bring to the boardroom table? 

As mentioned, one of the main roles of NEDs is to contribute to the board’s decision-making process by providing independent and objective insights. NEDs can add value to the board in various ways, such as: 

  1. Bring relevant skills and experience: They often bring specialised knowledge background from various industries, which enables them to offer unique observations, navigate complex challenges and capitalise on growth opportunities, identifying emerging trends, technological advancements, and market shifts that may impact the company’s strategic trajectory.  
  2. Challenge the status quo: Being independent from day-to-day operations allows NEDs to question established practices. NEDs can promote creative thinking, which can help the organisation find better solutions and promote a culture of continuous improvement. Their capacity to view things in a different way can lead to creating new strategies and methods that move the company ahead in a quickly changing business environment.
  3. Develop and implement corporate strategy: NEDs work closely with the CEO and other executives in shaping the company’s strategic direction. They help make sure that the strategy fits the company’s long-term goals, considering market changes, competition, and new possibilities. By working with executives, NEDs help turn the strategic vision into practical steps that achieve organisational results. 
  4. Guide and monitor risk and compliance: NEDs identify and mitigate risks that could impact the company’s performance. They advise on risk assessment methodologies, monitor the effectiveness of risk mitigation measures, and make sure the company follows relevant laws and regulations. By doing so, they help safeguard the company’s reputation, look after shareholder interests, and promote ethical business behaviour.
  5. Enhancing corporate governance: To enhance corporate strategy, organisations should appoint experienced NEDs with a proven track record. They help the board work smoothly, be transparent, and be accountable to shareholders and other stakeholders. NEDs support ethics and honesty in the organisation, leading by example. By joining board committees and checking governance practices, NEDs build trust and keep stakeholders’ confidence, improving the company’s image.  
  6. Increase stakeholder trust and value:NEDs build robust relationships with key stakeholders such as customers, suppliers, and investors, which enhances the company’s credibility and its ability to attract and retain customers and business partners. 

NEDs use their experience and industry contacts to communicate effectively with these stakeholders, learn their needs and expectations, and include them in the strategy-making process. This helps the company increase shareholder value by making smart decisions that boost growth and profit. 

You should now be fully convinced. But here’s where the plot thickens. Within the realm of non-executive directors, we find a species known as independent non-executive directors (iNEDs).

Non-executive and independent non-executive directors, what’s the difference? 

INEDs are like the elusive wanderers, untethered from the confines of company walls, yet armed with invaluable insights from traversing various boardrooms. They are board members who have no significant financial or personal ties to the company or its affiliates. NEDs, on the other hand, might have some ties, albeit not in an executive capacity. 

In other words, whereas a NED may be representing a major shareholder of the company, an independent director will generally have no other links with the company other than sitting on the board.  

This independence allows iNEDs to provide unbiased oversight and advice and assist in managing conflicts. More precisely, they can evaluate strategic decisions and scrutinise fee structures, offering impartial opinions on matters such as fees paid to related parties. For example, they might evaluate a proposal to increase fees paid to the ManCo or the portfolio manager for the fund.  

Using their experience and industry acumen to drive meaningful outcomes, iNEDs bring clarity to complex scenarios, ensuring alignment with shareholder interests. Their insights bridge the gap between global aspirations and local realities and enrich the board’s discussions by fostering a culture of accountability and transparency—and thus ensuring a high standard of governance.   

Together, NEDs and iNEDs draw upon external insights while grappling with internal complexities, balancing the scales of liability and performance. 

How do iNEDs cope with collaboration and conflict management? 

As mentioned, one of the defining aspects of the iNED role is its emphasis on collaboration and managing conflicts. INEDs’ independent perspectives can help reconcile divergent viewpoints and steer the company towards sustainable growth.  

For example, iNEDs can be very helpful when the board has to make difficult choices like whether to invest or distribute resources in more uncertain areas. 

Unsurprisingly, being an iNED isn’t always a smooth sailing. Sometimes, iNEDs need to deal with conflicting interests, especially when they serve on the board of a management company that supervises a fund. In such cases, they have to balance the best interests of both the fund and the management company, which may not always align.  

This requires a careful and nuanced approach, as well as a clear understanding of the complexities involved. On a side note, it’s worth highlighting that a NED or iNED can’t be part of both the ManCo and fund board for independence reasons. 

Where are NEDs and iNEDs based? 

Where do these NEDs hail from, you might wonder? Do they dwell within Luxembourg territory or outside the Grand Duchy in search of wisdom? The simple answer is both. Some are locals, steeped in the lore of Luxembourg’s marketplace, while others are dotted geographically beyond the borders bringing a global perspective to the table.  

Mike noted: “Speaking of my clients, they are creatures of habit, particularly those located outside Luxembourg. US managers like having local Luxembourg-based directors because of the experience they bring around the Luxembourg marketplace and because they have a good understanding of the local regulatory framework. This means many of the iNEDs may be local whereas other NEDs may be based outside of the Grand Region”. 

Is it mandatory for boards to have NEDs and iNEDs? 

In the world of regulatory oversight, there’s no official requirement from the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg financial sector regulator, demanding NEDs to be on boards of funds or ManCos (except for some cases).  

However, the situation has changed in the past decade or so. Now, it’s a rare sight to come across a board without at least one NED or iNED, and the trend has now veered towards having at least two. This is for good reason: Being the lone dissenting voice amidst a board of executives can be quite daunting. Moreover, companies see more and more the value of NEDs and iNEDs. 

What’s the secret mix for a good board? 

In the pursuit of effective governance, we cannot emphasise enough the pivotal role of a diverse board, not only from a gender perspective but also considering skillset, background, age, among others.  

However, diversity alone isn’t sufficient; a good board also requires a culture of trust, transparency, and accountability, where directors can challenge each other constructively and collaborate effectively. NEDs and iNEDs play an important part in fostering this culture. 


From the labyrinthine landscape of governance, NEDs and iNEDs emerge as beacons of integrity who navigate the complexities of the corporate landscape with skills and purpose. They protect shareholder interests and uphold corporate ethics, showing what it means to lead responsibly and create a better, more sustainable future. 

They have a vital role in today’s market and business world, which are more uncertain and complicated than before. They need help—and we are essential in that aspect. Our Fund Governance Survey conducted with the Institut Luxembourgeois des Administrateurs (ILA) is like a treasure map, helping to navigate director duties.  

The last Governance Survey, published in 2022, covered various topics—such as board composition, board organisation, roles and responsibilities, and more—giving an overview of the current governance practices in Luxembourg. The next edition of this survey will be prepared over the summer and early autumn of 2024, as it’s published biennially. It will be launched at the ILA/PwC Fund Day in January 2025. 

Other initiatives we organise, like NED Day and the ILA/PwC Fund Day, help equip directors with the knowledge and tools needed to navigate complex terrains. By distilling intricate regulatory frameworks into digestible insights, we empower directors to ask the right questions and make informed decisions, thereby enhancing governance effectiveness in Luxembourg.

What we think
Michael Delano, Partner at PwC Luxembourg

Luxembourg’s robust governance framework emphasises transparency, accountability and investor protection. The inclusion of non-executive and independent non-executive directors further enhances the oversight, ensuring independent judgement and mitigation of conflicts of interest.  Through rigorous governance practices well established in the asset management sector, Luxembourg ensures funds and ManCos operate with integrity, aligning stakeholder’s interests and fostering a stable financial environment, bolstering its reputation as a premier global financial centre.

Mike Delano, Asset & Wealth Management Leader at PwC Luxembourg 

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