Non-executive directors are essentially guardians of good corporate governance. They need to be aware of legal and regulatory issues, culture and business ethics, disclosure and transparency, risk management, monitoring, communication and trust as well as understanding and appointing the board of directors and committees.
Being an NED is not a linear process, but a dynamic one. You need to be involved in all areas and focus on the strategy and direction of the company while not getting too focussed in the mechanics. Your role is to act as a sense check to the Board.
The boardroom framework is made up of various areas – and you need to understand each area.
- Does it have the right purpose – what are the objectives and culture of the organisation? This drives performance.
- Does it have the right people – do you have the right skills set, who needs to be developed, what is the composition of the Board? This facilitates strong leadership.
- Does it have the right procedures – how are things communicated? What are your corporate policies? This promotes good working practices.
The NED role can be compared to a jigsaw puzzle. You need to look at:
- Capability and commitment – do you have the time needed to do this role effectively
- Challenge – are you prepared to ask the difficult questions
- Collaborate – can you work as part of a team
- Catalyst – will you bring your own experience and share your knowledge
- CPD – are you committed to keeping up to date and will you take responsibility for your own professional development
If you are thinking about becoming an NED, you should look at:
Think about what you want to do and why. Plan which appointments you would like to take and once you decide where you want to go ensure you understand the company and your responsibilities. Most NED appointments last for between 5-8 years and so at the appropriate time it is important to put a succession plan in place.
Over the last 10+ years the NED dynamic has changed. Increasingly companies are looking for greater diversity, a younger and more digitally savvy group where reverse mentoring might be useful. In addition, companies are looking at the data they hold and how they (and their NEDs) can understand this.
Some key questions:
How do you get in to an NED role?
You must consciously decide that you would like to pursue an NED appointment and then tell people (head-hunters, your company, your network) what you can offer. It may be possible to become a trustee of your current company to build your experience and exposure or you could volunteer for charitable roles to build this experience.
As treasurers the strengths you can bring include looking at the company’s finances – you need to understand how the company is funded and how the strategy is reflected in the finances.
What are NED hirers looking for?
Companies will filter by:
- Are you someone who will enable the board to go one step further? If so, give examples of how you have done this in the past.
- Could you join a committee, such as the audit committee? If so which one and show how you can add value?
- Will you understand the business? For your first appointment look at what you do now and match this with an NED role.
Do you understand your Strengths, Weaknesses, Opportunities and Threats (SWOT)? Use your strengths to show what you can bring to the appointment, understand your weaknesses so that you understand what you need to develop. The Executive is looking to the Board to do something different and new. They value Boards with different perspectives.
If you are unsure about a role there is benefit to being a ‘good candidate’. This means speaking to the head-hunter or company, understanding why they think you would be good for the role and then explain how your skills might not match what they want. This will ensure that although this might not be the right appointment for you, you are on the radar for future roles.
Remember that you should be interviewing them as well as them interviewing you. Are you happy to be an NED for this company, in this sector, with this Executive? It is key to make sure you can work with the Chair and Executive and understand what they want from you.
What would you suggest an NED looks for within the organisation to ensure the culture is what it should be?
You need to build in time to look at the company culture in your due diligence. Look at the company website, the marketing material they provide, any policies that illustrate the company culture. If you can do so ‘walk the floor’ – get into the organisation to see what it is actually like.
Also look at the composition of the Board and how reflective this is of the organisation’s objectives.
What should you look out for with a distressed company?
Every business faces challenges from time-to-time. Look at how the Board and the Executive address these challenges and find a way through. Do you agree with the way they are approaching the issues, and do you think the solutions are right? If yes, then you have the opportunity to help the company – and to make a real contribution.
If you are thinking of becoming an NED for a distressed company, ask a lot of questions. And make sure you have evidence that you have asked these questions.
To what extent do you need to understand the company outside of the scheduled meetings and pre-prepared documents?
The Executive team do not always have time to meet outside of scheduled sessions but there is a real benefit to seeing the business outside of formal meetings. If there is a reason to meet – for example if you have a specific question to ask – then this is a good way to understand how the company works outside of scheduled meetings. Meeting for a coffee half an hour before a scheduled meeting is a good way to do this.
In addition, if the Executive or a committee meet informally, perhaps for a sandwich lunch, then it is important for you to attend some of these informal meetings too.
If you work for a bank is this a disadvantage when looking for NED positions.
Often companies want an individual with financial experience and they do not differentiate between banking and corporate experience. Background is less important than the technical, financial skills you have. If you show you understand the business this is the key issue.
There has been a lot in the press about Executive remuneration. What responsibility does the NED have in relation to pay?
This is often a moral dilemma. In the past, investors/Boards did not seem to really understand what could happen when they approved some of the extremely high pay levels. There is much more awareness of the issues now and more scrutiny on this.
As an NED you need to be able to stand up for what you believe but to listen to others to understand the issues involved and to come to a balanced view.
My thanks go to Louis Cooper, Chief Executive of NEDA for his insightful presentation, Gillian Karran-Cumberlege, Partner at Fidelio and Charlotte Morgan, AMCT, Non-Executive Director at FCE Bank for speaking on the panel at the ACT NED and Volunteering evening on 19 November.