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Blog : The rise and fall of the non-executive director?

Blog

The rise and fall of the non-executive director?


By Jane Sunley, CEO

There’s no doubt that talented non-executive directors (NEDS) have made valuable contributions to countless organisations over many years of business. However, in today’s world when everything is faster and who dares appears to win, could they could be stifling creativity; wasting time and standing in the way of risk taking? 

 I don’t make this statement lightly; from numerous discussions with entrepreneurs and business leaders, rarely do the praises of their NEDs outweigh the moans and groans. They complain about:

  • The amount of time spent in board meetings explaining the intricacies of ‘the reality’
  • NEDs, by their very nature being risk averse, inhibiting creativity  “It’s my role to ensure your safe passage”
  • Doubting and even vetoing the more outrageous, though potentially lucrative, ideas
  • Time spent on looking back and over analysing performance
  • Everyone has a different opinion – it’s hard for the leaders to lead
  • NEDs applying their own ‘best practice’ rather than current ‘right fit’
  • Asserting that what made them successful in 1995 still works today
  • NED’s believing they know more about the business than those who operate it

It’s for these reasons that learnpurple doesn’t employ any NEDS, preferring instead an extended internal leadership board. You might say this cynicism over NEDS is the short-sighted, rather petulant mentality of a control freak. Well I’m none of these things; nor am I naïve enough to believe that external expertise and experience aren’t useful. When we need it, we recruit a specialist. I’ve worked on boards with and without NEDs. I am, and have been, and NED myself and know, first-hand, which organisations got things done, beat the competition, were flexible and nimble and created uniqueness. And I know whether their NEDs helped or hindered.

 And let’s take your average board paper pack. Ever been faced with something that could, if wielded, beat off a small army of marauding invaders? Page after page of analysis and ancillary information, much of it there to tell the NEDS what everyone else already knows. Who reads this stuff? How long does it take to plough through it all before and during the board meeting? I suspect there are few that feel stimulated and inspired by these discussions. A sensible alternative would be to table strategic discussion topics beforehand and minimise the results pages to a ‘need to know’ summary. This way NEDs can bring thoughts and relevant information instead of feeling they need to question the detail so that once in the meeting, time is spent on forward focused, strategic decisions and planning.

It’s not just me that feels this way. This week I had lunch with an old friend and fellow entrepreneur. He was telling me how his NED investor vetoes most of his best ideas, which has taken away the key drivers for starting his business in the first place.  Take another successful SME. They employed two NEDs from the start (at fees that as a start-up they really couldn’t afford) thinking it was the ‘done thing’. Having endured time-wasting conflict in the board room and unnecessary interference outside it they eventually extracted themselves from the relationships in 2003 and haven’t looked back since.  

So to go down the NED route or not?

 The following was taken from a website dedicated to advising start-up businesses (take note of the cons)

 Pros

They are outsiders and you should be able to rely on them to be objective.

They should be able to balancethe needfor short term profit and long term results.

Minimising crises should come more naturally as they have probably seen it all before.

 Cons

Experienced non execs may be tempted to interfere where they are not needed.

You may feel a NED is superfluous in a company that runs well without one.

Even if fees are small, there is a risk that non execs may not pay for themselves. 

 

In my view, deciding upon a NED is a matter of personal opportunity, requirement and circumstances.  An investor who helps the organisation to grow; bringing contacts and expertise is invaluable. However one who doesn’t can potentially be more damaging. So here are our tips for making your NED work for you:

  • Think very carefully about what sort of skills, knowledge or expertise your internal board / leadership team is lacking: is the NED route the best way to access these skills?
  • Avoid being bewitched by specific industry knowledge over real NED skills
  • Do you want someone long term or is it preferable to access different skills sets when you need them?
  • Avoid being blinded or flattered by their status, previous achievements, wealth, personality – look for track record, relevance and evidence that they’re up to date
  • Do your homework – check them out; interview them for the role
  • Talk to others who have experience of working with your proposed NED – you probably wouldn’t employ an executive director without taking references and thoroughly checking them out
  • Consider how you want things to work and agree the ground rules from the start; clearly defining your needs and expectations (including what you don’t want)
  • Make sure the NED has a well thought out induction so they really understand your business and the issues
  • As well as helping in the boardroom, make sure there are other benefits e.g. networking, ambassadorial, mentoring
  • Make sure you find a big picture thinker over someone who will only dwell in the detail; someone objective who brings expertise you cannot otherwise access.
  • Make sure you like them and have the required chemistry to create and sustain a winning partnership
  • Make sure they have a genuine enthusiasm for your business – if you’re a start-up are they prepared to take a reduced fee in the early days to support your growth?

The rise and fall of the non-executive director - What are your experiences?

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