Jersey: The Increasing Importance Of Non-Executive Directors

Last Updated: 29 March 2010
Article by Paul Wilson

Recent high-profile judgments and investigations regarding investment fund structures have highlighted some key points to be bourne in mind both by investors and by fund services businesses. The Jersey Financial Services Commission (the "JFSC") has been publicly flexing its muscles through active participation in Court proceedings and designation of investigators to undertake an audit of the activities of a Jersey fund company.

Such moves should not be viewed in a negative light; Jersey's financial services business reputation is founded upon secure regulation and supervision. If Jersey is to maintain its position as a leading offshore jurisdiction, it must be seen to be actively managing and dealing appropriately with any problems that arise.

Certain issues that have arisen surround independence, proper corporate governance and managing conflicts of interests within structures. Businesses that provide legal, administrative and non-executive directorships within the same group have been under scrutiny, particularly as to how they deal with conflicts of issues in the context of regulated entities.

As a result, clients are favouring independent providers; law firms without trust or fund administration arms; trust and company fund administrators that will not insist on providing a full board of directors and, most crucially, non-executive directors.

What is a non-executive director?

A non-executive director is a member of the board of directors of a company who does not form part of the executive management team. Non-executive directors are the custodians of the governance process. They are not involved in the day-to-day management of the company but monitor the executive activity and contribute to the development strategy.

A non-executive director is defined in the Cadbury Report 1992 as persons who "apart from directors' fees and shareholdings [are] independent of the management and free from any other business relationships which could materially interfere with the exercise of independent judgment."

Directors' duties – Common law

Under the Companies (Jersey) Law 1991, as amended ("CJL") there is no distinction between executive and non-executive directors.

All directors are subject to the following fiduciary duties:

  • exercise honesty in all judgments;
  • act in good faith at all times;
  • to act in the best interests of the company;
  • exercise diligence, care and skill; and
  • exercise prudence.

Statutory duties

Directors have a duty to keep accounting records which are:

(i) sufficient to show and explain the company's transactions, and

(ii) such as to disclose with reasonable accuracy, at any time, the financial position of the company (Article 102 CJL); and

(iii) in accordance with a set of generally accepted accounting principles which must be stated.

If the company is one which is required to be audited the accounts show a "true and fair view of the profit or loss of the company for the period and of the state of the company's affairs at the end of the period" ... [and which] "shall be approved by the directors ..." (Article 104 CJL).

Functions of non-executive directors

Non-executive directors are appointed to bring five key qualities to the board of directors, namely:

  • Independence;
  • Impartiality;
  • Experience;
  • Specialist knowledge (Jersey Financial Services Commission ("JFSC") requirement); and
  • Personal qualities.

What makes a good non-executive director?

Together with the five key qualities the achievement of balance of the board of directors as a whole as well as commitment, perception and a broad perspective of the area or industry.

The key responsibilities are:

  • Contributing to the strategic direction of the company;
  • Efficiently solving problems that arise;
  • Communicating with third parties;
  • Ensuring all the audit requirements are satisfied;
  • Remuneration of the executive directors;
  • Appointing the board of directors.

Strategic direction

Given non-executive directors have a broad perspective they provide a clear view of external factors. Their primary role is to provide an objective and informed view to the board of directors. In particular, non-executive directors should provide constructive criticism on plans and policies devised by the executive team.

Problem Solving

The role of the non-executive directors is imperative when internal problems arise, as they may be the only people who can act when a dispute arises between the company and executive director/s e.g. Managing Director or Chief Executive.

When non-executive directors act independently from the board of management, this can avoid a loss of confidence by enabling them to act as interface between shareholders and executive directors at difficult times.


Given non-executive directors are usually entrusted with the duty to connect the business with outside people and networks, as well as represent the company externally, whilst being the main contact with investors, bankers and other interested parties.

Remuneration of executive directors

The non-executive directors normally act as a check on executive directors voting themselves excessive remuneration. It is usually the non-executive directors' duty whilst acting in the best interests of the company as well as acting independently to devise appropriate remuneration and incentive packages, along with severance packages and the terms contained therein.

Appointment of Directors

When selecting executive directors it is pertinent to appoint directors with appropriate experience, qualifications and personal qualities. Non-executive directors shall usually devise appropriate packages by ensuring a good balance of the board of directors is maintained. The non-executive directors usually participate fully in ongoing appraisal of performance with respect to executive directors and all other non-executive directors.

How do non-executive directors add value?

Non-executive directors provide specialist expertise which is essential for viability, hence JFSC vetting and JFSC approval is required to ensure a particular non-executive director is right for a particular fund.

The right people will give confidence to private investors, and are essential to attract institutional investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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