NED Engagement Criteria

The condition. Continuous access to management accounts, cash position, AR and AP positions, and consolidated or divisional P&L. Monthly, on the first working day. Sight of the bank reconciliation and the covenant position where debt is in place.

The rationale. A NED cannot exercise the duty of care under s.174 CA 2006 without timely sight of the financial position. A board pack delivered three working days before the meeting, with management accounts a month or two stale, makes the seat decorative. The condition mitigates the wrongful trading risk under s.214 IA 1986 and the s.172(3) duty to consider creditor interests once a company is in financial difficulty.

The condition. Every scheduled and ad-hoc board meeting. Voting rights identical to executive directors. Papers circulated in the same form and at the same time as papers issued to executive directors. Right to require a matter to be tabled on the agenda. Right to require dissent recorded in the minutes.

The rationale. A NED who attends "in an advisory capacity" without a vote is not a NED. The board's collective decision-making sits inside s.172. A director who cannot vote on the matters before the board cannot discharge that duty, and the company cannot rely on the board having properly considered the question.

The condition. Sight of the draft auditor's management letter before it is finalised, with the right to require specific findings to be included or expanded.

The rationale. The management letter is one of the few independent reads a board gets of internal control and going concern. Where management has the option to soften the letter behind closed doors, the audit committee and the wider board lose visibility. The condition gives the NED a structured point at which to test the audit position.

The condition. Minimum £2m limit per claim. Side A, B and C cover. Six-year run-off cover on departure. Premium paid by the company.

The rationale. Personal liability under the Companies Act and adjacent regimes is real. A NED holding a seat without proper D&O insurance is taking unbounded personal risk against a fixed fee. Side A protects the individual where the company cannot indemnify. Side B reimburses the company where it can. Side C extends to securities claims. Run-off cover protects the NED against claims that emerge after departure. £2m is the practical floor for a mid-market UK company; larger or more complex businesses need more.

The condition. A written commitment from the founder, principal shareholder, or executive chair confirming no filtering of information, the duty owed to the company rather than to any individual, and the NED's right to raise matters on the record with the full board.

The rationale. In founder-led and PE-backed mid-market businesses, the most common failure mode is not bad faith. It is information asymmetry. The condition does not assume hostility. It sets the contract for transparency at the moment the relationship is healthiest, so that the structural commitment is in place before the first uncomfortable conversation.

The condition. UK Corporate Governance Code 2024 test for independence. No employment in the last three years. No material commercial relationship with the company or the group. No material shareholding. No performance-linked pay. Limited-independence seats are accepted only on a disclosed basis with the board's express agreement.

The rationale. Independence is the substance behind the title. A NED who is also drawing material consulting income from the company, or who holds a stake large enough to matter, is not in the same fiduciary position as an independent. The condition does not preclude limited-independence seats. It requires them to be named as such, on the record, so the wider board and the shareholders see the position truthfully.

The condition. Any other paid engagement with the same client during the NED term requires prior written disclosure to the chair, a formal board decision, and a structure that protects the integrity of the NED role.

The rationale. The conflict-of-interest duty under s.175 CA 2006 is direct. Parallel paid engagements are not always wrong, but they always require disclosure and a board decision. The condition mirrors the statutory position and adds the practical step of protecting the independence of the NED seat from drift.