A good external non-executive director (NED) can be a great asset for a company. The right individual can help to coach and mentor the CEO, assist in defining a company’s place in the market and help to create an aligned board.
So what’s the right NED for your business and what can you expect of them? Based on my experience as an investor board member working with a number of external NEDs the following are, in my opinion, the key characteristics required.
Business building experience:
Look for an individual with experience of having run, and ideally exited, a company larger than your own (that is similar to your business). The reasoning is simple – to apply the lessons learned by the NED in their previous business to your own (and avoid the common pitfalls). While both sector and business building experience are important I would attach more weight to business building experience.
Time, time and more time:
In order for the relationship to work the NED needs to be able to dedicate enough time to the company.
While having industry luminaries as board members looks good on the website, it is unlikely to have any real value if the NED doesn’t have the time to apply his or her mind to the challenges and opportunities faced by the business. At a minimum this means attending board meetings in person (ideally) or via video conference and spending somewhere between half a day a month and two days a week of time with the CEO and management team outside of regular board meetings.
Time outside board meetings between a CEO and NED should be the most valuable time. The CEO needs to ask the NED for input and make the time available.
Simon Guild, an independent NED of a number of businesses, expresses this requirement as a “semi-exec” – i.e. it is more than a pure non-exec role.
Good personal fit between the CEO and NED:
Life’s too short to work with people who you don’t get along with and no matter how great the NED, if you don’t feel that they are someone you can work, with it won’t work.
A good NED will be a mentor/sounding board for the CEO and management. Simon Guild feels that the independent NED is the person that the CEO “can have any conversation with” – as a result, trust plays a very important role in the relationship.
Nick Heys, Former CEO and Founder of Emailvision and advisor/board member to numerous companies says that he derives pleasure from the fact that his advice is being listened to – its up to the CEO to show that he’s able to take the advice and create something better in the business.
A great NED is unlikely to get very rich working with a growth business even if it has a successful outcome and so in many cases they are not doing it for the money – they will do it because they think what you do is interesting and because they like you. The message here: you really need to sell your story to a NED in order to get them to join.
It is very helpful when a NED, in addition to spending time in board meetings, spends time in the company – not just with senior management but also in the operations.
The reason for this is to help bridge the gap between discussions at the board and what’s going on in the business. Nick Heys calls this “inside / outside” experience – inside being in the company’s operations and outside being at the board.
There is one final point, which I’m specifically adding at the end as it is a theme that often comes up in the beginning of the NED search process but is only really helpful if it’s in addition to the above points:
Specific experience to solve today’s problem
It is very common to want an NXD with experience related to some problem the company has at the moment – for example, a predominantly offline retailer wants to increase their online revenues so wants to add an NXD with online experience. Or, a company with a weak sales force wants to add an NXD who is very sales driven.
If you can hire someone with the specific experience to solve today’s problem, which also ticks the boxes above then that’s great. If the executive doesn’t tick the boxes above it is problematic because the NXD’s value will be significantly reduced once the problem is solved.
For this reason I think you need to look for someone who will be helpful today as well as in 3 years time. Consider hiring advisors, as opposed to NXD’s to provide very specific experience.
Hillel is a Partner with Kennet Partners, a growth equity and growth buyout fund with offices in London and California that invests in high-growth, capital-efficient, founder-led businesses in the technology and business services sectors.