As the nation enters into recession once again, the pressure on UK-quoted companies to perform is greater than ever. In addition to economic downturn, businesses are operating against a backdrop of growing shareholder activism and corporate distrust.
These factors combine to create a climate in which every single member of an organisation must make a significant contribution to the bottom line. It is natural then that the role of the non-executive director (NED) in this environment comes under enhanced scrutiny.
The old style NED – often criticised for being little more than expensive albeit necessary evil – has been replaced by a new breed. Today, a NED’s role and responsibilities reflect the transformative effect they can have on a company.
Often, the role of the NED can be seen as something of a poisoned chalice. When things go badly they are held accountable, yet when things go well, they are rarely praised for their achievements.
This degree of culpability reflects the way in which the role of the NED has evolved. Today the function of a good NED goes beyond that of protecting shareholder interests at board level. They inform strategy, evaluate risk, guide on points of detail and help boards and companies to instil best practice in business-critical areas. As their functions have become better defined, their impact has been felt more keenly so that a good NED is now known and valued beyond the boardroom.
The boardroom as a target for activism and reform has been instrumental in developing the role of a modern day NED. A good board must be seen to be competent, diverse, ethical and reflective of the company it represents. With its structure and complexion under increasing scrutiny, the appointment of a suitable NED can make a real difference to both the performance and reputation of a board.
Leading by example
Once on a board, NEDs are instrumental in setting and meeting high standards. The central role they play in the ongoing examination of executive remuneration is just one example of this. NEDs are simultaneously a part of an organisation and separate to it, and it is this relative independence that lends legitimacy to their judgments on contentious issues such as bonuses. NEDs are often a driving force behind ensuring that pay and incentives are fair and competitive; despite common misconception around such issues.
Corporate governance has always been a key purview for NEDs and one that is becoming more critical as external stakeholders focus interest on the manner in which a company is run. Those in the role play a vital role in not only ensuring good practice but promoting strong corporate governance credentials across the wider business community. So important is this function that some are calling for the introduction of a professional qualification in order for the NED to further enhance their expertise.
In the current environment, having a strong NED on a board can mean the difference between survival and failure. The value of the guidance one can bring to a business is recognized internally, as well as externally, particularly with investors, who are increasingly putting store in the caliber of a company’s NED.
As all stakeholders – from employees to regulators – become more cognisant of the advantages that a quality individual brings, today’s NEDs are changing their long running reputation of being opportunistic, expensive and a deadweight on a board. Instead they are being applauded as key boardroom partners helping to transform and expand the landscape of UK plc.