The role of the non-exec director (NED) is one of the more misunderstood in business. For companies setting up a board for the first time, it can especially tricky to find, engage and manage non-executive directors to get the best out of them. But you can make the process a little easier by asking yourself a few basic questions, the answers to which can provide a road map. In part one of this guide to non-execs, we looked at what a NED is and what they do. In this part, we look at how they can help your business and how you can find a good one.
What are the key benefits of having a non-exec director on your board?
There a numerous benefits, some obvious, some less so. Firstly, non-execs tend to improve the general decision-making and strategic structure of the business. They know how to run a board properly and will be able to advise directors on how to approach thorny problems and handle challenges. And they will improve corporate governance – how your business is run – a subject many SMEs approach with wariness.
Essentially, NEDs can improve directors’ performance by constructively challenging decisions – asking supportive but worthwhile questions designed to stress test the board’s performance and make sure all angles have been considered. Lastly, they can also bring new thinking and possibly useful connections to the business.
Where do you find them?
There are numerous ways of finding the right non-exec to join your business, some more formal than others. Many owner-managers turn first to their personal networks to find non-execs. It’s an obvious approach, but one that needs careful consideration.
Personal contacts are a good idea if the relationship is professional and the contact would be deemed to be independent for corporate governance purposes. However, personal friends would not be a good idea: fundamentally, non-exec directors need to be able to challenge management in a constructive and positive manner.
For those companies looking for a completely independent director with no previous ties to the management, agencies, and networks exist to match directors with companies in need. The Institute of Directors holds a register of NEDs and can advise members on suitable recruitment.
And then there are other networks – your bank manager or finance provider may know a suitable candidate, while professional advisers like lawyers and accountants are also usually well connected. In some cases where the business has a substantial third-party shareholder, they may insist on putting a non-exec on the board to provide oversight.
Do they have to be from your industry?
In a word, no. Many experts would say that while sector experience is important, the ability to understand the business, embed good processes, spot potential risks, and advise and support the management team are far more important.
What qualifies the NED to make suggestions about your business?
In terms of having credibility, for the most part, a good NED will bring gravitas and be able to show that they can deliver things quickly and put forward suggestions. In addition, they will be able to analyse the data that they’re presented with and come up with credible options and issues for the execs to consider.
What do you pay them a non-executive director?
How long is a piece of string? At the very top of the tree, the average remuneration for a FTSE100 chairman is currently £361,000, according to PwC’s latest survey. But back at ground level, according to the IOD, a typical non-exec can expect to earn between £6,000 to £25,000 per year in non-listed or small businesses.
If you would like our advice on finding non-exec directors for your company, then please get in touch.