Non-Executive Directors (NED) can be a useful soundboard for ideas and strategy – but should your business look to bring one onboard? Business Leader investigates.
A NED is a member of a company’s board of directors, who is not a part of the full-time staff, or an executive member involved in the day-to-day management of the business. However, they may be involved in policymaking, the businesses’ growth plans and can offer an independent oversight of the aims and goals of the firm.
They are typically brought into a business by the owners and the company shareholders to constructively challenge the decisions made by executive directors and senior management – and often have specialist knowledge in the sector and stage of growth the company is currently in.
On the benefits of bringing in a NED, Gary Ashworth, Founder and Executive Chairman of InterQuest Group comments: “It’s no secret that humans need other people to help them be the best they can be. Tennis players have coaches, racing drivers have a whole entourage of professionals fawning over them, Peloton owners take delight in people shouting at them. It all starts with the humble understanding that we entrepreneurs need help. Smart businesses have Non-Executive Directors.”
Pros of an NED
So on the presumption that smart businesses have NEDs, what value will they add.
Mike Townend has recently been appointed as a NED at sustainability intelligence firm, Curation Corporation Ltd. He comments: “For me, the main element is to be a sounding board, to listen and to help emphasise that a company’s purpose and mission is obvious and that they have a clear strategy and route to achieving their goals. It is my role to almost ‘de-stress’ everyone and help them pull together cohesive frameworks and processes and to be a constructive challenge to their thought processes. I have in depth knowledge of how to develop and cultivate company culture and diversity of thought, as it is imperative that businesses recognise that you need diversity of thought to grow and scale.”
Jane Hamilton, Chair of NHS Property Services agrees with this assessment – and the current global drive for diversity can be driven by an NED.
She said: “Recruiting a NED can be one of the most valuable additions you make to an organisation. Not only can the right person give you an external perspective, but they can also challenge perceived wisdom and encourage the Executive to think differently. The right choice will diversify your board, and this can result in an exciting range of new ideas.
“A good NED should be comfortable both with challenging the status quo and showing support when it is needed. The skills and experience that they bring to a company allow them to act both as a mentor and an objective sounding board and a great addition will always show courage of conviction.”
However, probably the most common and trusted reason for bringing in an NED is to have someone guide a business through challenges that are on the growth journey – especially if that person has experience it already themselves.
Ashworth explains: “If you’ve chosen the right person, they’ll have done what you’re trying to do before ten-times over. They’ll have had the raging successes and, more importantly, they’ll have made the mistakes and wear the scars of past disappointments so that you don’t have to.
“Additionally, NEDs become actual directors of your company, so have a fiduciary responsibility to stick to the law, conform with the Companies Act and do the right thing for shareholders. It’s quite a responsibility, staking their reputation on what, in their terms, probably isn’t a life changing amount of pay.”
He continues: “You can hire one for anything and everything. From start-up advice to building business contacts to specific projects such as a new IT installation, flotations, acquisitions, remuneration committees, HR issues or business coaching. The list is endless.
“If we had to pinpoint a time in a business’ journey where NEDs are crucial, it’s when a business is scaling. Typically, what got us here, won’t get us there. This necessitates a structural redesign where the infrastructure of the business must catch up with the sales, and you must relay the foundations for the company of tomorrow you expect to be.”
And one of the biggest challenges business owners can face is securing the right investment and investment partners, in order to scale in the right way. This is also where an NED can help.
Fran Quilty, CEO of ecommerce data specialist Conjura has himself brought NED’s into the business to help with their growth trajectory.
He comments: “Overall, non-execs should contribute the most in the strategic direction of the business. A good non-exec helps hugely with investors. They make it easier to attract them and the board chair can also help to handle them, freeing up the CEO from doing so. NEDs can also bring experience in certain areas that may prevent mistakes from occurring, such as fundraising.
“They can give credibility with clients, and might even add a little more discipline to the management team. Plus, of course, a well-regarded name can be used to attract top talent to the business.
“Non-execs provide structure as they introduce cadence to management interactions and reflection on the business. They also offer a level of oversight that ensures that investors have some representation on the board.
“They uphold the responsibilities of management and consistently remind them of their duties to investors as well as to employees and customers. They also bring credibility, which can boost external confidence in an inexperienced management team.
“This is often one of the key roles of a NED, especially as businesses start out. They will often have scaled businesses before and can provide priceless advice. Scaling requires lots of strategic decisions along the way and this should be perfectly aligned with what strong NEDs bring to the table.”
What experience should they have?
To know what to look for in an NED, it is first important to understand your goals for growth and where you lack the knowledge or experience for what is to come.
Clearly, the right person should be someone who has gone through the trials and tribulations that are going to be hurdles to jump in the months and years ahead.
Former CEO of global ethical shoemaker, TOMS, and now NED at ethical pet food brand Lily’s Kitchen, Helen Thompson, shares her views on what they should bring to a company.
She said: “NEDs will be hired for a particular set of skills and experience that will complement the needs of the company and the makeup of the other board members. It is important when hiring new NEDs that the board chair and executive leader are transparent about the strategic direction of the organisation and have a clear understanding about what skills they need to bring. I hope to be able to contribute to the next stages of Lily’s Kitchen’s plans, not only by helping to strengthen their commitment to their purpose and values, but also in the parallels I can bring from leading strong international and multi-channel consumer brands.
“Once hired, they must be willing to openly share their experiences and skills to board discussions, so that the organisation can benefit from their unique contribution. They must be prepared to contribute and to express their thoughts and perspectives. An NED must also take their governance responsibilities seriously and ensure the executive leaders and board follow these responsibilities.
“They must also have experience of engaging with board situations, maybe as an executive leader or from other senior positions, that enable them to conduct themselves in a way that supports positive board dynamics.”
As a company grows, it is important to have someone who will objectively look at the company and suggest some difficult changes – something those on the executive team would find hard to accept or see. Therefore, it is important to look at rotating who is in an NED role as the company evolves.
Quilty comments: “The experience of the ideal non-exec depends on what the company needs at any given moment. Our first board member had a sales/marketing background with scaling experience, which was exactly what we required at that point in time. More recently, we brought in a board chair with lots of fundraising experience as that is the next hurdle for the business.
“I think for an early-stage business it’s helpful to create a board with both corporate and start-up experience. Too much of one or the other may introduce biases and defeat the object of having NEDs there in the first place.”
Recruiting a NED
After deciding to move forward with bringing in an NED, their services can only become official after a ‘Letter of Appointment’ rather than a normal employment contract. The letter must define the length of time they are to serve in the role, the weekly time commitments and the wage they will receive. According to the IoD, NED pay ranges from £38,000 to £105,000.
So, when should you bring one into your business? Well, there are many elements to consider. Townsend explains: “I think each business is different and unique and NED’s will fulfil different needs at different times for companies. Having said that, probably before a company is looking to scale, when they are hoping to go into hyper growth or move faster in the scaling up process.”
Before proceeding with the recruitment, there are some tips to take onboard from those who have been in this position before.
Quilty comments: “It can be useful to start the relationship in an advisory capacity and if the fit is good, transition the person to a NED role. Consultants can also sometimes help businesses to identify the right people. We used Board Excellence to recruit our board chair and working through their formal process was incredible. As experienced board members themselves, they were able to guide me on what we should look out for.”
Hamilton continues: “Be bold and adventurous and look for a NED in unexpected places. Don’t recruit in your own image – diversity is essential for bringing new ideas and perspectives into a room. It is also vital that a portion of your NEDs understand and represent your customer.”
However, it is clear that as the business evolve, the needs of an NED evolve with it. This is why many NEDs are only involved for a set time period, before the next stage in the company’s growth journey starts.
Ashworth concludes: “People assume that NEDs are a temporary addition to a company, but this couldn’t be further from the truth. You’ll need a NED’s help from the day you start a business to the day you sell it – but it doesn’t have to, and shouldn’t, be the same NED.
“The key is to keep changing the people to reflect the evolving needs of the business. Like auditors, NEDs need to be changed after a maximum of three years or they lose their independence, become too familiar and lose their objectivity, putting the success of your business at risk.”
Peter Milne, from specialist recruiter Robert Walters agrees: “NED skill and experience needs to be aligned to the companies objectives. For example, if company is re-financing or going through a period of growth then the NED skills need to align to these objectives. Personality fit is a key criteria alongside experience – in addition to leadership, problem solving, analytics ability. Most importantly, NED’s must be independent thinkers and be able to challenge alongside supporting a board with its objectives.”