Non-executive directors occupy a position of structural independence within the corporate governance framework that makes allegations of misconduct against them both particularly sensitive and particularly difficult to investigate through internal channels. The NED’s independence — the quality that makes them valuable as a governance check on executive management — also makes them less subject to the standard employment processes that govern the investigation and discipline of executive employees.
The NED’s Legal Position
Non-executive directors are officers of the company, not employees in the conventional sense, and the legal framework governing their conduct and removal differs accordingly. Their appointment is typically governed by the company’s articles of association, a letter of appointment, and — in listed companies — the UK Corporate Governance Code. Removal of a NED requires a shareholders’ resolution or, in some cases, a board resolution, depending on the specific governance structure.
This means that an investigation of a NED cannot proceed through the standard disciplinary process applied to employees, and the outcome — even where misconduct is clearly established — may require shareholder action rather than a simple management decision. Legal advice on the specific governance structure is essential before any action is taken.
Common Concerns Involving NEDs
Conflicts of interest: a NED who has an undisclosed interest in a transaction that the board is considering, or who sits on the board of a competitor or counterparty without disclosure, is in breach of their duties as a director.
Confidentiality breaches: disclosure of board-confidential information to external parties, which may be motivated by their own business interests or relationships.
Inappropriate conduct: conduct toward executive management, employees, or fellow board members that falls below the standard required of a director.
Independence concerns: a NED who is classified as independent but who has relationships with management or significant shareholders that compromise that classification, affecting the validity of decisions made on the basis of their independent status.
The Investigation Approach
A NED investigation is governed through the board, excluding the NED under investigation. Where the NED under investigation chairs a board committee, that committee’s oversight of the investigation passes to the remaining independent directors. The investigation is conducted by an external investigator, with the NED being notified of the allegation and given the opportunity to respond.
Bond Rees conducts NED investigations with the specific governance sensitivity these cases require, working alongside the company’s legal advisers and ensuring that the process is consistent with the company’s articles, the NED’s letter of appointment, and the applicable corporate governance standards.
Investigating a non-executive director? Contact Bond Rees for expert, governance-sensitive investigation support.
