Bringing a non-executive director (NED) into a company can be a very smart move for CEOs, CFOs and for the Board, particularly at times of significant change or upheaval in the business.
The objectivity and wide experience of the right NED can be a great asset for businesses and it helps to discuss your plans with your accountant or corporate adviser so you get the timing right and select the best candidate.
In the longterm, a good NED helps ensure the company is being run well and promotes corporate governance, strengthening the management and control systems in your company.
The top five reasons for bringing in a NED:
- Commercial experience and knowledge
- Strategic vision for your business or challenging the current strategy, to ensure it is right for the business.
- Giving a unique perspective and taking an objective view of your business
- Setting and monitoring key performance indicators
- Oversight of the executive board and holding them accountable
So what attributes make a good NED?
Over the years, I’ve learned that Boards should seek out NEDs who can demonstrate:
- A strong, transparent and honest relationship with the CEO, with awareness that executive directors and NEDs have different roles. The NED should ensure the executive board is running the company well.
- Good business knowledge and communication skills, both for within and outside of the company. Broad experience is important for a NED in order to be as effective as possible.
- A strong understanding of the business and good relationships with the staff, customers, investors and any other key stakeholders. The NED should also build a strong relationship with your external advisers.
- An ability to set out his or her vision for the business and present it to the shareholders and stakeholders and should monitor progress against this vision.
- The strength of character to challenge the executive board when it comes to business plans and goals to help provide a commercial reality check.
There are one or two pitfalls which good NEDs always avoid:
- The NED’s role is to ensure the company is well run and not to run the business. NEDs should not get too involved with the day-to-day running of a business and stray from high level strategic advice.
- There is a risk that when challenging the executive board a NED might turn into a boardroom policeman. An effective NED understands the balance between ensuring good corporate governance and adding commercial value to the enterprise.
Above all, you should remember that there’s never a right or wrong time to appoint NEDs. Keep an open dialogue with your corporate adviser or accountant and they can advise on the timing and help identify the right person at the right time who will add value as your business grows.
Kingston Smith and NEDs
John Cowie, partner at Kingston Smith, helped a London-based transportation business raise external equity capital, introducing an industry consultant to guide the company and its Board through the process. Following completion of the investment, the consultant invested personally in the company and joined the Board as a non-executive director to monitor progress against KPIs set at the time of investment.
Jonathan Garbett, director at Kingston Smith, advised Kings Park Capital (KPC), the leading mid market leisure specialist private equity providers, on their buy out of Fuel Juice Bars in 2011. Jonathan had previously introduced Chris Sullivan to them as a seasoned multiple site leisure retail operator with experience including Starbucks, Harry Ramsdens and most of the major Blackpool and Brighton tourist attractions. KPC selected Chris to the board as non executive director on completion of the deal. Chris brought his operational and strategic insight to business in particular the rapid roll out of the format to UK shopping centres. Chris ultimately became CEO when the founder decided to retire from the business.