If you’re running a company (or about to set one up), director roles can feel confusing fast. You might hear people talk about “executive” directors, “non-executive” directors, “independent” directors, and even “shadow” directors - and it’s not always obvious what the practical difference is for your business.
The good news is: once you understand what each role is meant to do, it becomes much easier to build a board structure that actually helps your company grow (and keeps you compliant).
This guide is current as at 2026 and focuses on what New Zealand business owners need to know in practice: how executive and non-executive directors operate day-to-day, what their legal duties are, how liability works, and what documents you should have in place to protect the business from day one.
What Is A Director In New Zealand (And What Do Directors Actually Do)?
In New Zealand, a “director” is a person appointed to the board of a company. Directors are responsible for governing the company - meaning they help set direction, oversee performance, and make major decisions.
Directors aren’t just there for optics. Under the Companies Act 1993, directors have legal duties and can be personally accountable if they don’t meet them.
While every company operates a bit differently, directors commonly:
- Set and approve company strategy, budgets, and key business plans
- Hire, oversee, and (if needed) replace senior management (like the CEO)
- Approve major contracts, financing, and asset purchases/sales
- Monitor risk, compliance, and financial performance
- Ensure the company acts lawfully and in the company’s best interests
One of the biggest misunderstandings we see is thinking directors are only responsible for “big picture” decisions, and management handles everything else. In reality, directors must still take reasonable steps to ensure the company is being properly run - even if they’re not involved in daily operations.
If you’re setting up or reviewing how your company runs, having a clear Company Constitution can help define how directors are appointed, how decisions are made, and what powers the board has.
Executive Vs Non-Executive Directors: What’s The Core Difference?
The simplest way to think about it is:
- Executive directors are directors who also work in the business day-to-day (they’re part of management).
- Non-executive directors (NEDs) sit on the board, but they don’t have an operational management role.
Both are still “directors” under New Zealand law. That means they generally owe the same statutory and common law duties - even if their day-to-day involvement looks very different.
Where the real difference shows up is in:
- How close they are to daily decision-making
- What information they naturally have access to
- How they influence strategy and risk
- How they’re paid (salary vs director fees, or a mix)
- How conflicts of interest are managed
In many small and growing NZ companies, founders start as executive directors by default. As the business grows, you might bring in non-executive directors to provide expertise, governance, and independent oversight - without hiring a full-time executive.
Common Examples
- Executive director: a founder who is also the CEO or operations lead.
- Non-executive director: an experienced industry advisor who attends board meetings and challenges strategy, but doesn’t manage staff.
What Does An Executive Director Do (And What Are The Pros And Cons)?
An executive director is typically involved in both governance and management. In practice, they may:
- Lead a department or the entire business (e.g. CEO, CFO, COO)
- Implement the board’s strategy through daily operations
- Manage staff, budgets, and internal processes
- Report performance and risks to the board
Because executive directors are “inside” the business, they’re often essential for making sure board decisions translate into real-world outcomes.
Advantages Of Executive Directors
- Strong operational insight: they know what’s happening on the ground.
- Fast decision-making: they can act quickly and update the board as needed.
- Clear accountability: they’re responsible for implementation, not just oversight.
Risks And Challenges To Watch
- Conflicts of interest: an executive director may be influenced by their employment role, bonus structures, or internal politics.
- Less independent oversight: if your board is mostly executives, it can be harder to challenge assumptions.
- Role confusion: it can be unclear when the person is acting as “management” vs “director” - which matters for governance and documentation.
If your executive director is also an employee, your paperwork should reflect that. For example, it’s common to have an Employment Contract in place alongside governance documents that cover their director appointment and responsibilities.
It can feel awkward to formalise these things when you’re working with a co-founder or someone you trust - but getting it clear upfront tends to prevent messy disputes later.
What Does A Non-Executive Director Do (And What Makes Them “Independent”)?
A non-executive director (NED) is appointed to the board but does not hold a day-to-day management role in the company.
Their role is usually about:
- Governance: providing oversight and ensuring decisions are made responsibly
- Strategy: helping set direction and testing whether management’s plan is realistic
- Risk: asking the hard questions and ensuring the business has sensible controls
- Performance monitoring: reviewing financials and key metrics
- Networks and credibility: opening doors to partnerships, customers, or investors
Many companies bring in a NED when they:
- Are scaling quickly and want experienced governance support
- Are raising capital and want board strength for investor confidence
- Operate in a regulated area (or have higher compliance risks)
- Need specialist expertise (finance, tech, HR, industry knowledge)
What Is An “Independent” Non-Executive Director?
“Independent” isn’t a separate legal category under the Companies Act - it’s more of a governance label used to describe a non-executive director who can make decisions without being influenced by relationships or interests that could affect their judgment.
In a practical sense, an independent NED typically:
- Is not an employee of the company
- Does not have a close family relationship with management
- Is not a major supplier/customer where that relationship could influence decisions
- Does not have a significant shareholding (depending on what your company considers “significant”)
Even in smaller companies, independence matters. If your board is too “close” to management, you can miss risks early - and that’s when issues tend to get expensive.
If your company has multiple shareholders (especially if investors are coming on board), a clear Shareholders Agreement can help set expectations around board composition, director appointment rights, reserved matters, and decision-making thresholds.
Do Executive And Non-Executive Directors Have Different Legal Duties And Liability?
This is the part many business owners don’t realise: executive and non-executive directors generally owe the same legal duties as directors.
In New Zealand, directors’ duties come from sources including the Companies Act 1993 and general law principles. While the details can be nuanced, duties commonly include:
- Acting in good faith and in the best interests of the company
- Using powers for a proper purpose
- Complying with the Act and the company’s constitution
- Not trading recklessly or allowing the business to incur obligations it can’t meet
- Taking reasonable care, diligence, and skill
So if the legal duties are similar, why do people say NEDs have a “different risk profile”?
Why Liability Can Feel Different In Practice
Non-executive directors are usually less involved in daily operations, so they often rely more heavily on information provided by management. That reliance can be reasonable - but it’s not unlimited.
A non-executive director still needs to:
- Read board papers and financials properly (not just skim them)
- Ask questions if something doesn’t add up
- Push for more information when necessary
- Ensure appropriate systems and reporting are in place
On the other hand, executive directors are typically closer to the facts. That means they may be expected to know more, sooner - and may find it harder to argue they “didn’t realise” something was wrong.
What About “Shadow Directors” And Advisors?
Sometimes a person acts like a director without being formally appointed - for example, if the board regularly follows their instructions.
This is a serious risk area, because that person may be treated as a “shadow director” and could face director-like responsibilities without the protections or clarity of a proper appointment.
If you’re unsure whether someone should be a director, consultant, or advisor, it’s worth getting advice early and documenting the relationship properly (for example, with a consulting agreement).
How Should You Structure Your Board And Documents To Avoid Disputes?
The “right” mix of executive and non-executive directors depends on your company’s size, complexity, and growth plans.
But for most SMEs and startups, a good structure is one where:
- The board has enough operational knowledge to make informed decisions
- The board also has enough independence to challenge management and manage risk
- Everyone understands which decisions are “board level” vs “management level”
Here are the legal building blocks that commonly support a healthy director structure.
1. Clear Governance Rules (Constitution And Shareholder Settings)
Your constitution and shareholder arrangements often set out:
- How directors are appointed/removed
- Voting thresholds and board procedures
- Quorum rules for meetings
- Reserved matters requiring shareholder approval
If you’re bringing in investors, co-founders, or family shareholders, you’ll usually want both:
That combination helps you avoid “handshake governance” (which tends to break down the first time there’s pressure, disagreement, or a major financial decision).
2. Written Terms For Directors (Especially Non-Executives)
Non-executive directors are often paid director fees rather than wages. Even when it feels informal, you should document:
- Remuneration (fees, equity, reimbursements)
- Expectations around time commitment and availability
- Confidentiality obligations
- Conflicts of interest process
- Access to information and reporting
If you’re offering equity or performance-based equity, you may also need something like a Share Vesting Agreement (so expectations are clear if someone leaves early).
3. Employment Documents For Executive Directors
If an executive director is also an employee (or will be), you’ll want an Employment Contract that clearly covers:
- Their role and responsibilities as an employee
- Pay, leave, and performance expectations
- Confidentiality and IP ownership
- Termination provisions (and notice)
This separation is important because a person can stop being an employee while still remaining a director (or vice versa). Clear documentation helps prevent confusion about what ends when.
4. Managing Conflicts Of Interest Properly
Conflicts of interest are common - especially for executive directors and founder-directors. Examples include:
- A director who owns another business supplying services to the company
- A director negotiating their own salary/bonus package
- A director pushing for a deal that benefits a related party
Conflicts aren’t automatically “wrong”, but they must be handled transparently and in line with your governance rules and the Companies Act requirements.
Having a dedicated Conflict Of Interest Policy (and actually following it) is a practical way to reduce risk and keep decision-making clean.
5. Directors’ Access, Indemnities, And Insurance
Directors (executive and non-executive) often ask about protection if something goes wrong. Two common tools are:
- Director indemnities (company promises to cover certain costs, subject to legal limits)
- D&O insurance (an insurance policy that may cover certain claims and defence costs)
These tools can be helpful, but they don’t replace good governance. They also have limits and exclusions, so it’s worth getting advice to ensure what you’re putting in place is actually fit for purpose.
Key Takeaways
- Executive directors are involved in the company’s day-to-day management, while non-executive directors focus on governance and oversight without holding an operational role.
- Both executive and non-executive directors are generally subject to the same director duties under New Zealand law, including acting in the best interests of the company and avoiding reckless trading.
- Non-executive directors can’t “switch off” responsibility just because they’re not in the business daily - they still need to stay informed, ask questions, and exercise independent judgment.
- A well-balanced board often combines operational knowledge (executive directors) with independent oversight and specialist experience (non-executive directors).
- Clear governance documents like a Company Constitution and Shareholders Agreement can prevent disputes about director appointment rights, decision-making power, and reserved matters.
- If executive directors are also employees, a proper Employment Contract helps separate “employment” obligations from “director” responsibilities and reduces confusion if roles change.
- Putting conflict management processes in place early (including a Conflict Of Interest Policy) can significantly reduce governance risk as your company grows.
If you’d like help setting up your director structure or getting the right documents in place (so you’re protected from day one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
