Adding value to the business is a key driver for most Chief Executives and business owners and one way in which to plan to do so is to engage a highly credible Non-Executive Director who can help achieve growth ambitions but equally might help avoid the hidden pitfalls that might threaten to derail the company. According to the Institute of Directors (IoD) the role of the Non-Executive Director is “...to provide a creative contribution to the board by providing objective criticism”.
Throughout the UK there are many thousands of businesses from listed FTSE 100 giants through to privately owned SMEs (including start-ups) and across the third sector in not-for-profit organisations that benefit from NED experience and insight; the former are required from a governance perspective (see UK Corporate Governance Code www.frc.org.uk) whereas for others such structure is purely voluntary and beneficial.
A NED appointment can have a significant impact on a business, whether in achieving growth ambitions (home and/or abroad), ‘steadying the ship’, achieving a more effective Board or simply providing fresh insight and challenging the perceived norm of company strategy. Bringing someone into the business with a demonstrable track-record of success can enhance the credibility of the company’s management team which can make a real difference in securing funding for growth (e.g. through banks or VC / PE investors) and even winning new business. Using an appointment to ‘gap-fill’, where the Executive team have shortfalls is also possible, for instance in Merger & Acquisition experience if such activity might be part of a growth agenda.
For the SME community, FTSE levels of governance aren’t required so NEDs are more able to focus on strategy development, mentoring and using their network to help win new business (though they’re certainly not there to be the Sales Director!).
Expected to provide external perspective to the Board and constructively challenge the development of strategy, they’ll certainly want to help safeguard the future of the business through monitoring performance, risk and audit but can also be asked to assist in areas such as remuneration and in recruitment and succession planning.
Legally they’re still responsible as Directors.
The role of the Chairman is an extension of the NED remit, typically engaged in a company with investors who value someone that can represent the interests of all parties and help to constructively resolve any differences of opinion; they’ll also play a role in setting the company ethos, ensuring effective governance, overseeing performance of the business, the CEO and the board as well as acting as a coach and confidante of the CEO. They should excel at building and retaining relationships with the Directors as well as communicating and engaging with external stakeholders.
Appointing the right Chairman can yield dramatic results, though equally appointing the wrong Chairman can significantly destabilise and weaken a business.
A NED typically demonstrates a successful career track-record with depth and breadth of experience at senior levels as well as strong commercial and financial awareness in conjunction with a macro-economic acumen and real gravitas. Able to balance the need for independence and integrity with an engaging approach and a passion for the business, they most certainly need to connect with people. To most effectively use the executive tools acquired over their career they require good emotional intelligence, partly because of the need to influence rather than command but also because they need to be willing to challenge without ever crossing the executive line.
Engaging a NED
For a SME it is very likely that the Return On Investment realised by engaging Non-Executives will far outweigh attributable costs (namely recruitment fees and the Non-Executive’s own fees) by many multiples.
If this resonates with you and you’d like to explore how having a Non-Executive Director might benefit your business or you’ve already decided to engage a Non-Executive Director but are unsure of how best to go about it, please contact me for a confidential discussion.
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