INED: What Is It Good For?
Absolutely Nothing? This takes me back to the Steve Biko bar at University where Edwin Starr's anti-war anthem provided the adrenaline fuelling soundtrack to chaotic cocktail night! But I digress...
Key takeaways
INEDs provide independent judgement and constructive challenge.
Effective oversight depends on asking difficult questions, not simply receiving information. Overboarding and information asymmetry makes the role harder.
Strong governance balances accountability, risk oversight and long-term value.
A board can meet every month, read every paper (can it, or does it?) and still miss the question that matters most. That is often where an Independent Non-Executive Director, or INED, earns their place.
INEDs are not there to run the business day to day. They are there to bring independence, judgement and constructive challenge. A good INED helps the board see beyond management’s preferred view, test whether decisions serve the long-term interests of the firm, and make sure governance is more than a set of documents filed away after approval.
For regulated firms, the case is even stronger. Regulators expect boards to show effective oversight, clear accountability, sound risk management and fair outcomes. INEDs play a central role in proving that those expectations are built into how the firm actually works.
What an INED is and what the role is not
An INED is a board director who is independent of management and does not hold an executive role in the firm. They should have no relationship, interest, or past involvement that could compromise their judgment. INED is a specific sub-class of non-executive director. While all board directors have the same legal responsibilities, including to exercise sound and independent judgment in the best long-term interests of the company, INEDs should be completely free of any other ties with the company.
The word independent matters. An INED should be able to ask difficult questions without worrying about internal politics, personal reward, operational ownership, or existing loyalties. They should be willing to disagree, but not for the sake of performing independence. The best INEDs challenge in a way that improves the decision, not in a way that stalls every discussion.
I have seen service providers (such as administrators and compliance advisory firms) start to offer INED services drawn from their own employees. One has to question how such appointments can be viewed as effective and independent if, for example, there is a commercial relationship already in place.
The word non-executive also matters. INEDs do not manage teams, approve routine operational decisions, or become shadow executives. They rely on management to run the firm, but they test whether management is running it well.
Information Asymmetry - one of the drawbacks of being one step removed from the business is that INEDs do not have immediacy and depth of access to information that the executive has, and this can hinder effective challenge. Board papers, of course, help in bridging that gap, but an INED should not simply rely on that—intelligence gathering through market contacts, AI tools, and exposure to individuals at the operational level are essential. This, of course, all takes time and commitment.
Overboarding INEDs - individuals who hold multiple board positions—can bring broad experience and valuable cross-sector perspective. However, multiple appointments may create concerns about time commitment, divided attention, conflicts of interest, and independence.
I have come across an individual with 10+ INED roles, whilst working as an executive part-time; a former CEO told me that he had such an INED on his board who clearly did not have time to read the board papers and was subsequently mostly ignored!
As a benchmark, varying with size and complexity and position held, a non-executive board position takes up around 25-30 days a year (much higher for a chair) with 4 (including any executive positions held) being about the limit.
Boards should therefore assess not only an INED’s expertise, but also whether they have sufficient capacity to contribute meaningfully to each mandate.
A strong INED will usually:
Scrutinize strategy, risk appetite, and major decisions
Test whether board papers are complete, balanced, and clear
Challenge assumptions behind forecasts, growth plans, and capital needs
Ask whether customer, employee, shareholder, and wider stakeholder interests have been considered
Monitor executive performance and succession planning
Support the chair in building a healthy board culture
Sit on key committees, often audit, risk, remuneration, or nomination committees
They should also bring perspective from outside the firm. That may come from sector experience, regulatory knowledge, financial expertise, technology understanding, risk management skills, or a track record of leading organizations through change.
The governance rationale for INEDs
Good governance depends on more than capable executives. Executives bring essential knowledge of the business, but they also carry natural biases. They may be invested in a plan they designed. They may underplay risks because they believe in the strategy. They may miss weak signals because they are too close to the detail.
INEDs help correct that imbalance. They provide independent scrutiny over the areas where unchecked executive control can create risk. That includes remuneration, conflicts of interest, internal controls, related party matters, acquisitions, outsourcing, capital allocation, and risk appetite.
They also help the board avoid groupthink. A board that only hears one type of experience, one commercial instinct, or one view of risk will make narrower decisions. Independence adds friction, and in governance, the right kind of friction is useful. It slows down weak decisions and strengthens good ones.
This is one reason board composition matters. A board should have the right mix of executive knowledge, independent challenge, and specialist expertise. INEDs are not a decorative feature. They are part of the board’s control system.
In the UK, this principle appears across well-known governance expectations. The UK Corporate Governance Code places weight on board independence, the role of non-executive directors, and the need for constructive challenge.
For listed companies, financial services firms, large private companies, and organizations with public interest responsibilities, the direction of travel is clear. Boards must be able to show that decisions are examined, documented, and made with proper oversight.
INEDs make that easier, but only when they are genuinely independent and properly used.
The regulatory case is getting stronger
Regulators do not expect INEDs to prevent every failure. They do expect boards to create the conditions where serious issues are more likely to be found, questioned, and addressed.
In financial services, regulatory bodies such as the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in the UK emphasize governance, accountability, conduct risk, and effective challenge. In Dubai, the Dubai Financial Services Authority (DFSA) also adopts a similar regulatory approach, focusing on high standards of conduct and governance within its financial services sector, including composition and independence at board level.
Generally, national regulators are guided by principles set at supra-national level through the mechanisms of the G20/OECD and in turn the financial regulation standard-setting bodies of Basel (banking), IOSCO (securities), and IAIS (insurance). The guidelines set out by the Organisation for Economic Co-operation and Development (OECD), for example, advocate for robust governance frameworks and regulatory practices to enhance financial stability globally.
That raises the stakes. Independence is not just a boardroom preference. It can form part of a firm’s regulatory control environment.
Regulators often look for evidence that the board:
Understands the firm’s material risks
Receives accurate and timely management information
Challenges executive proposals before approving them
Oversees customer outcomes, conduct, and culture
Has clear committee structures and terms of reference
Records debate, challenge, and rationale in minutes
Acts when risk indicators, audit findings, or control issues arise
An INED contributes to each of these areas. They can ask why a risk metric is deteriorating, why an audit action remains overdue, why complaints are rising, or why a product is profitable but causing poor customer outcomes.
The point is not to satisfy regulators through appearances. It is to create a firm that can withstand scrutiny because its governance works in practice.
This also matters outside financial services. Investors, lenders, insurers, public bodies, and counterparties increasingly assess governance quality. A board with credible independent oversight sends a useful signal. It suggests the firm takes accountability seriously and does not leave major decisions to a closed executive circle.
The benefits for the firm
The benefits of INEDs are practical, not simply procedural. Ultimately, it goes to ensuring a firm meets its objectives and continues to do so in the long term for the benefit of its stakeholders.
First, they improve decision quality. Independent challenge forces management to explain the logic behind recommendations. That can reveal weak assumptions before money, reputation, or customer trust is put at risk.
Second, they strengthen risk management. INEDs can connect risk discussions to strategy, capital, culture, and incentives. They help ensure risk is not treated as a compliance appendix at the end of the meeting.
Third, they improve accountability. Executives know proposals will be tested. Committees know unresolved issues will be followed. The board knows decisions need a clear rationale.
Fourth, they help build trust. Investors, regulators, employees, and customers are more likely to trust a firm when there is visible independent oversight. For founder-led or private firms, this can be especially valuable. An INED can help the business move from informal control to mature governance without losing entrepreneurial energy.
Fifth, they support better succession and remuneration decisions. These areas are hard for executives to judge alone. Independent directors can bring objectivity to performance, reward, and leadership planning.
For growing firms, INEDs can also act as a bridge between the business today and the business it needs to become. They bring experience of scale, control, reporting, and board discipline.
Good practice and bad practice in using INEDs
The value of an INED depends on how the firm appoints, supports, and listens to them. A strong appointment can still fail if the board culture is weak.
Good practice | Bad practice |
Appoint INEDs through a clear skills, independence, and fit assessment | Choose a familiar name because they are agreeable or well connected |
Give full, timely, and balanced board papers | Send late papers that push directors towards rubber-stamping |
Encourage constructive challenge and record it properly | Treat challenge as disloyalty or slow down dissent until it disappears |
Provide induction on strategy, risk, regulation, culture, and key controls | Assume a new INED can learn the firm by attending meetings |
Review board and committee effectiveness regularly | Let poor dynamics continue because no one wants an awkward conversation |
Keep a clear line between oversight and management | Let INEDs become informal executives or operational fixers |
Refresh the board when skills or independence weaken | Keep long-serving directors without testing independence of mind |
How boards can get more value from INEDs
Firms get the most from INEDs when they treat them as part of the governance system, not as occasional guests.
A few habits make a clear difference:
Build board agendas around the decisions that matter most
Share papers early enough for proper review
Make risk, customer outcomes, and financial resilience part of strategy discussions
Give INEDs private time with the chair and senior control function leads
Use committees well, but keep the full board accountable
Ask INEDs to lead or support reviews where independence is useful
Evaluate whether challenge changes decisions, not just whether meetings run smoothly
The chair has a special role here. A good chair draws INEDs into the debate, manages dominant voices, and makes sure executives hear challenge as part of good governance. The chair also needs to act when an INED is not contributing.
INEDs must also take responsibility for their own impact. They should stay curious, keep learning, visit parts of the business where appropriate, understand the firm’s culture, and ask for clearer information when needed.
The real test is the quality of decisions
A board does not need INEDs so it can look well governed. It needs them because independence changes the way decisions are made.
The real test is not whether the board has the right number of independent directors listed in its governance documents. The test is whether INEDs influence the quality of debate, expose weak assumptions, strengthen risk oversight, and help the firm make decisions it can defend.
Strong INEDs bring curiosity, courage, and perspective. They understand the boundary between oversight and management. They help boards stay honest when growth is exciting, when pressure is high, and when the easiest answer is to approve what is in front of them.
For firms that want stronger governance and better decision-making, INEDs are not optional decoration. They are one of the clearest ways to build challenge, accountability, and trust into the boardroom.
The Future: The Hybrid Boardroom: The Impact of AI on the Role of Directors
According to a recent World Economic Forum report, AI tools are transforming the way Independent Non-Executive Directors (INEDs) engage with board information. These tools can effectively process large volumes of data, providing summaries of reports, drawing comparisons between current performance and historical trends, and identifying anomalies that warrant further scrutiny. For instance, AI may detect a product line that is yielding unexpectedly high returns, margins, or growth relative to the overall business.
While AI should not replace human judgment or assurance, it empowers directors to pose more insightful questions:
What are the underlying factors driving these results?
Is the performance sustainable over the long term?
Are risks being underestimated?
Could there be concerns related to data quality, accounting practices, or ethical conduct?
When utilized correctly, AI serves as an additional lens for informed challenge, enhancing the effectiveness of independent oversight rather than substituting it.
If your board would benefit from greater independence, challenge or governance support, get in touch to discuss how I can help.
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