A non-executive director can bring fresh ideas to a company, but the right candidate is hard to find.
They used to be drawn by cartoonists as men with rotund bellies and bald heads, puffing on fat cigars, but that caricature of non-executive directors hasn’t been accurate for a long time. However, while the satirists’ image has been laid to rest, there is a clutch of new questions about the future role of non-executive directors in Britain’s boardrooms.
At the top level, among listed companies, there are worries about whether strict new rules on governance with powerful penalties for transgression will deter some talented potential non-execs from putting their names forward. Although they take no part in the day-to-day management of a company, non-executive directors bear broadly the same legal responsibilities for the company’s governance as the executive team.
There is also a fresh raft of non-executive director issues among smaller, privately owned companies that have not previously had a non-exec on the board. One of these is whether to appoint a non-executive director for the first time. Colin Coulson-Thomas, a professor at Greenwich University Business School, has served on many SME boards and is the author of Developing Directors: A Handbook for Building an Effective Boardroom Team (Policy Publications, 2007). He is in no doubt that a non-executive director can bring a fresh view to even a successful company. But it’s not always easy to find the best candidates.
Relevant skills and qualities
“The most sought-after candidates will have strategic awareness, a holistic perspective as well as multifunctional and international experience,” he says. “An ability to look ahead, think and take decisions, along with integrity, curiosity and the courage to challenge, are also welcome. Certain skills are particularly relevant to the work of boards, such as visioning, planning, delegating and monitoring.”
But while these are the qualities of an excellent non-exec, Coulson-Thomas points out that some careful thought needs to go into a decision to appoint an NED. “Nomination committees often look to fill gaps and complement what existing board members bring to the table,” he says. “For example, one board may be well endowed with the financial expertise that another is looking for.”
Rose Spencer, director of finance and resources at Cause4, an organisation that advises charities and social enterprises on strategy, including how to recruit and train NEDs, agrees that plugging a skills gap is an important motive for appointing a non-exec. “Law and finance are often the skills gaps to be found on boards of small and medium-sized companies,” she says. “The attributes and qualities – rather than the skills – that an NED needs are primarily independence, integrity and the respect of other members of the board.”
Chris Spencer-Phillips, managing director of First Flight, an NED recruitment agency, believes there should be four different personality types on a well-balanced board. The first is the strategist: the person who can see the big picture and how the larger issues relate to one another. Second, there is the operational specialist who looks at the strategy and works out what has to be done in detail to bring that strategy to fruition.
Third, the board needs a driver – the go-getter, the person who pushes forward and provides the impetus to get things done while others would move too slowly to beat the competition. Finally, there should also be a cautious mover, the one who applies the brake to the go-getter when there is a danger of racing into a course of action without proper consideration. It’s all about building a balanced board with a range of points of view.
And that raises another issue: driven and creative entrepreneurs in the process of building a company don’t always value points of view that are at odds with their own. It’s an issue that only the entrepreneurs themselves can resolve, argues Coulson-Thomas. Ultimately, they have to see that their companies are going to reach a point where it is useful to have different opinions expressed around the boardroom table.
Neil Holmes, managing director of board practice at the executive search and recruitment consultancy Norman Broadbent, has clear ideas on the qualities a board should be seeking from an NED. These include a reflective and thoughtful approach combined with an ability to offer considered advice based on sound judgement.
A good NED, says Holmes, also needs the ability to listen and pick up on what is important, to probe incisively, to challenge effectively and constructively, and to offer support and guidance where appropriate. And, of course, a new NED needs the interpersonal skills to build a rapport with the other directors.
Finding the right candidate
So where is a small or medium-sized company going to find one of these paragons? In the past, many board appointments in SMEs came as a result of informal networking. But knowing a “reliable chap” at the golf club is no longer a reliable way to appoint an NED. There is also a need to increase the representation of women on boards, as was underlined by the 2011 report Women on Boards. There is nothing necessarily wrong about networking in the broader sense of meeting a wider range of potential NEDs. But the problem with relying solely on networking is that it tends to result in the appointment of similar people, rather than in the diversity that strengthens a board.
Specialist recruitment agencies such as First Flight can introduce a more varied selection of candidates, while the Institute of Directors runs a database of potential non-executive directors. Plugging a skills gap on the board may often be the impetus for seeking an NED, but competence and experience in a particular skill is not the only factor the board should consider when making an appointment.
It is important for candidates to understand what governance really means and what the board’s function is, says Paul Munden, course tutor on the Institute of Directors’ Role of the Director and the Board course. “The difference between direction and management matters,” he says. “Appointing a non-executive director can force a board to think about what the board-level decisions really are.”
Since it was launched, thousands of candidates have acquired the IoD’s valued chartered director qualification. If it appears on a candidate’s CV, it provides some reassurance that they really comprehend the role of a non-executive director.
But Munden sees many CVs that don’t convince, partly because they don’t effectively present the candidate’s experience as a potential director. “Too often, it looks like an executive CV,” he says. “Instead, the CV should highlight any experience at board level or in oversight roles.”
And another failing Munden has spotted is that boards sometimes fail to prepare adequately when interviewing candidates for a non-executive post. It is important to ask questions that uncover whether they grasp the difference between direction and management, and whether they have understood the company’s strategy, governance and culture.
Coulson-Thomas has seen hundreds of boards in his consulting work. “Some boards are in control and providing effective strategic direction,” he says. “Others are weak, divided and out of their depth.”
Appointing a non-executive director is an important decision is its own right. But sometimes it forces the directors to look at themselves and decide what kind of board they are. That could be the most valuable outcome of all.