'NED's provide a business with a detatched focus on issues and a guiding influence in corporate goverance'

Do non-executive directors make up part of your board?

If not have you considered what a non-executive director could contribute to your business?

Non-executive directors (NEDs) are usually considered to be found in big, multi-national companies and have often been associated with "jobs for the boys" rather than a proper position offering real value for the shareholders. In reality there is often a genuine requirement for a good NED in smaller and owner-managed companies. Research has shown that, even when a real need is identified, smaller companies will hold back from appointing a NED because they find it difficult to identify the right person and are unsure how such a position operates.

NEDs can be genuinely beneficial to owner managers and should be able to offer value in several areas. The most common benefit from a NED is mentoring in general business issues (rather than sector or profession specific). The NED will provide commercial nous, rather than technical skills. He will question decisions while remaining supportive. His advice will be a mixture of strategic and pragmatic.

When a company is growing or developing new products or services a good NED will add vital strength at the right time. The NED will not only assist in the introduction of the new product or service but will also be able to influence the new management demands that come with growth. A NED comes complete with a whole new set of network contacts and these should bring their own benefits.

In cases where a business is run by an entrepreneur the NED should significantly reduce the isolation of the individual. Too often a strong personality can rightly doubt the wisdom of those advising him or her from within the company. Motives are not always corporate.

When appointing a NED it is important to look outside one's existing circle but tempting not to do so. Outsiders can bring a whole new perspective but such an appointment is often more difficult. That is why appointments should be for a fixed contract period with the business owners having the option to cancel at anytime. NEDs should not have a financial stake in the company. This deminishes the independence of the advice. Keeping the NED distanced from the finances of the business can be an important counter to the entrepreneurial and family control characteristic of small companies - which although legitimate, may not always be in the best long-term interest of the firm.

The critical point is to be clear at the outset what is expected from a non-executive director.

What is a Non-Executive Director (NED) ?

In purely legal terms, a Non-Executive Director is exactly the same as a full-time Executive Director. However, the Non-Executive Director is not a full time employee of the Company they act for. In some Companies they may only attend the monthly Board Meeting. In other Companies they may act as a liaison or contact point for Shareholders, major customers or suppliers, bankers, etc.

In other organisations, their role is to sit on the Audit Committee, Pension Trustee Body, Directors Remuneration Committee and any other Committees that require an independent body of thought, separate and not answerable to the Chief Executive, Managing Director or Chairman.

Most quoted Companies have Non-Executive Directors and an increasing number of family owned businesses are recognising the value of Non-Executive Directors.

Why do Companies Need Non-Executive Directors?

Non-Executive Directors can be extremely useful to the employing Company. In many Companies, it can be relatively simple for the management structure to slip into an introverted and staid approach to business. It is fairly common for traditional, family owned businesses to fall into the trap of “we’ve always done it this way – why should we change”.

A Non-Executive Director however can often see risks and opportunities in the market place that are sometimes overlooked by the Executive Management. This is because they are not wrapped up in the day to day running of the business. A Non-Executive Director can, therefore, step back from the hurly burly of every day business life and see things from a different perspective.

The role of a Non-Executive Director can be particularly important when the Chairman or Chief Executive Officer of a Company is especially entrepreneurial or overbearing. Non-Executive Directors can have an influence to moderate a Chief Executive Officer who is doing the business for his own ego or financial benefit and not those of the Shareholders.

In other Companies, there could be the opposite problem in that the Non-Executive Director is brought in because the organisation lacks the entrepreneurial flair, international connections or drive and dynamism to compete in the modern day market place.

Some Companies require Non-Executive Directors to see them through a Corporate transition such as a change in ownership and the Non-Executive Director may bring highly specialised knowledge invaluable to a Company going through a flotation, relocation, rebuilding programmes and/or strategic alliance.

At its simplest level, a Non-Executive Director might just be brought in to fill a temporary shortage of in-house qualified Directors.

What do Non-Executive Directors actually do?

As seen above, what Non-Executive Directors actually do will materially depend on the particular reasons why the Non-Executive Director was brought in, in the first place.

In some Companies, a Non-Executive Director may become a part-time Chairman or confidante to the Chief Executive. In others, the Non-Executive Director may be brought in because they have specific managerial expertise – sales, marketing, personnel, I.T., finance, legal – or because they have particular contacts which would be of value to the employing Company, for example in Government, banking, finance, defence, etc.

A particularly valuable role for a Non-Executive Director is to question and challenge closely held beliefs of the management organisation to ensure that what the Company is doing is based on facts and experience and not just on the premise of “This is the way we have always done it”.

The experience of Non-Executive Directors can also be of great value to a Company to undertake specific projects for the Company – such as property investment, fund raising, corporate finance, mergers and acquisitions, take-over targets, overseas expansion, assistance with the appointment of a new Chairman, floatation, development of share option schemes, revision to pension arrangements, etc.

In general, host Companies value not only the skill, expertise and pragmatism but especially the outsiders‘ view that a Non-Executive Director can bring to a Board. They can be a remarkable asset to a Company as well as be a cause of radical transformation or rejuvenation

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