What Defines a Quality NED?

The best non-executive directors understand the strengths and weaknesses of an executive team, knowing when to impart advice and when to take a step back. It’s a role that can help a business avert disaster but it can also be pivotal in driving decisions that can reap stellar commercial returns. Naturally, finding the right individuals isn’t easy.

For those looking to secure their first NED roles, it’s essential to acquire a variety of skills in order to appreciate the pressure points within an organisation. Leslie Van de Walle, Chairman of construction material supplier SIG plc, says: “You should have learned how to empower other people and help them to succeed rather than doing the job for them. Generally, people that have had as much experience in as many diverse situations as possible will make good NED candidates; those that have been on the board dealing with group and company matters, rather than just a specific divisional matter, for example.”

Of course, that’s only part of the story. Sir Brian Bender, former Permanent Secretary of BERR and Criticaleye Associate, comments: “A large number of appointments result from personal contacts. You need to exchange experiences with people that have done it and take on board their advice and potential leads. Once a specific potential role arises you’ll need to read up about the company and, if at all possible, talk to someone who knows them and/or the board.”

Class acts

In theory at least, there is a general consensus about what a person needs to aspire to if they are to make the grade as an effective NED. Alan Giles, Chairman of clothing retailer Fat Face, says: “Executive directors develop trust and respect for a NED if his or her challenges are based on reasonable, well considered and researched grounds and phrased clearly but diplomatically. That requires individual NEDs to be very well prepared, to listen intently throughout the board meeting, and wherever possible to build rapport and acquire additional insight through investing time outside formal board meetings, such as by making site visits.”

A non-executive should possess that rare ability to weigh up commercial concerns while also having a healthy respect for risks and threats to the organisation. Chris Stooke, Chairman of commercial insurance broker Miles Smith, says: “It’s crucial to get the right balance between being too detached versus being very much in touch with what the company is doing, without interfering. Getting it right will depend on the requirements of different management teams, judging what their different skill sets are and where you can contribute most effectively.”

Jane Tozer, Non-executive Director at UK electricity payment provider Elexon Ltd, says: “A good NED should be prepared to speak up against the tide of boardroom opinion and make sure their point is considered, but by being assertive rather than aggressive. After all, you are not there to say it should be done this way. Rather you should advise based on your experience and you must let the managers manage. Not everyone can do this.”

In some ways, it’s a rather paradoxical position – a NED is asked to be at once engaged and yet simultaneously disengaged from affairs. Simon Laffin, Non-executive Director at market research business Aegis Group plc, says: “The executives provide lots of answers and it’s the job of the non-executives to keep asking questions to make sure that the executives realise that they haven’t got all the right answers just yet.”

Evergreen skills 

The question of generalist versus specialist areas of NED expertise will always surface when deciding on the composition of a board. “I believe it’s a trend we need to be very careful about,” says Jane. “A balanced board is vital, both for the health of the board and the development and experience of the non-executive. What worries me about wanting a NED because of their specialism is that the chairman isn’t thinking about the whole board, only about those narrow silos of specialist knowledge. And if everyone’s a specialist, you end up with group think.”

Peter Waine, a Partner at search and selection agency Hanson Green and Criticaleye Associate, agrees: “If you rely too much on trying to rectify a specific point, that NED’s benefits will be pretty marginal. It’s important for boards to have NEDs with generalist skills rather than a utility NED for the next two or three years, because a key part of being effective in the role is being a good mentor to the executives. The best non-executive appointments are made with certain skills that are transferable, evergreen, and that transcend the need for a specific skill.”

In the final analysis, it’s the leader of the board that decides if the composite skills are complementary or not. Chris says: “A strong chairman is very good at making sure everyone gets a fair hearing, allowing the non-execs to get their points raised and that other ideas are listened to, often against the views of a strong CEO.”

Constructive debate

Assuming you have developed a robust network of contacts, the right NED opportunity may occur when companies conduct board reviews or seek to bring in fresh blood to ensure that independence is maintained. It will be important to assess what it is an organisation is lacking and what exactly you can bring to the table.

Jane says that, from a board point of view, the focus will be on identifying whether “there are gaps in skills and experience, or perhaps more importantly, asking, ‘Do we have enough valuable discussion being created? Have we got enough people that are willing to speak up and challenge? Are we being as effective a board as we can be, or should we change the mix at the next opportunity?’”

Naturally, the skills required will differ enormously depending on the size of the company and whether a business is public or private. Robert Drummond, Chairman of renewable energy business Acta SPA, says: “If you’re trying to grow a business, very often the CEO hasn’t got the skills to take the company form size one to size two. However, the NEDs on your board might have that experience and can help the CEO and the company make that transition, because they have been there and done it.”

If it’s true that behind every failed company is a failed board, it follows that the influence of a NED has seldom been more important. When the right person joins a business they will inject it with a healthy dose of common sense, which can help to temper boardroom bravado while ensuring that the right decisions are reached – decisions that can push a business on to bigger and better things.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

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