Unfortunately, the topic of the differences between NED’s in the public sector and NEDs in the private sector is not a greatly researched topic. However, it is immensely important to gain an insight into the distinctions between the two roles, subsequently allowing both, boards and non-execs to understand how non-execs may be able to cross the divide that exists in the two different sectors.
Generally speaking, there are three major themes in which differences can be observed between these two types of NED roles: appointment and induction, director or trustee contribution optimization and the deployment of skills and talents.
Policy and Procedure
One area in which there is a distinct difference between the functions of an NED in the public sector and the private sector is in the manner in which policy and procedure are implemented and executed. It is the general concession that it is more difficult for NEDs to deploy their skill set in the public sector due to the internal infrastructure of a public entity.
The general function of the NED is the same — to provide an independent perspective that protects the integrity of the company or organization. Where there may be a distinct difference is that in the public sector, the primary concern of the NED is to protect the public interest, whereas in the private sector the primary concern will be the interest of the shareholder.
In both instances, the non-exec is required to work with certain executives within an organization, such as CEO’s, Finance Directors and HR Directors. The difference in function is based on the organizational setup.
Public sector boards have distinctly different structures than the boards in the private sector. Public sector boards tend to be larger, having a broader range of expertise represented at the board table. This can serve to limit the contributions of an NED, as the more people involved, the less opportunity there will be to be heard.
Board Objectives are Also Different
The private sector is profit driven, so protecting the shareholders will be paramount. This centralized focus provides a lucid purpose and a shared language that make communication and working together easier. The public sector tends to review progress over longer time horizons. They are also more resistant to change in both, the competitive and commercial environments or the public sector.
Individual Accountability is More Elusive
The performance targets and measurements for the public sector are softer than the private sector, which is partly reflected in the remuneration in comparison with the private sector. In the private sector, non-executive evaluations are common and expected, promoting a higher level of accountability and performance. When a non-executive is aware that they will be consistently evaluated, they will be motivated to perform introspective evaluations of their performance. The general consensus is that the private sector is more demanding, but the ability to impact the bottom line is greater as well.
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