What companies and potential NEDs need to know to establish their objectives and duties
At Sports Direct’s AGM last year, investors called for a substantial strengthening of the non-executive members of the scandal-hit retailer’s board. Non-executive directors (NEDs) only seem to make headlines when scandal is afoot – either criticised as ineffective yes-men or called in as white knights to save the day. Away from the headlines the reality is much less dramatic NEDs (known in the US as Independent Directors) play an important and varied role in businesses large and small.
Here Professor Ruth Bender, leader of Cranfield School of Management’s NED Seminar, offers a useful insight into what the role entails both for companies employing NEDs and for executives interested in the role:
The role of the non-executive director (NED) has become increasingly important in organizations over the past 20 years. Although the UK Corporate Governance Code assumes that all listed companies will have NEDs, they also feature on the boards of a lot of smaller businesses, as well as most not-for-profits, and many government organizations.
Independent NEDs can provide a useful sounding board for the organization’s executives; can act as a bridge to the outside world, linking to valuable resources and making useful contacts; and can act to improve governance. Generally, their role in larger organizations is mostly a ‘monitoring’ one, acting to ensure confirmation to appropriate governance practices, whilst in smaller organizations they have a much larger role in strategy and performance.
Any organization employing a NED needs to set out clearly the objectives in so-doing, to ensure that the right individuals are attracted to the role, and that the final appointment is appropriate. Are you seeking a specific talent to strengthen the board, for example in marketing or exporting? Is it more of a general appointment? Or is there a need to improve the standard of governance, for example, prior to a fundraising or float?
Likewise, an individual offered an NED position should be very clear about why they are the right person for the job. They should also do considerable due diligence about what that job will actually entail – from basics such as the meeting requirements, through to understanding the culture of the organization they are joining, who else is on the board, and how operations are conducted. Many checklists exist to help prospective NEDs with such due diligence.
The NED role is very different to being an executive, and it can be quite a culture shock for an active executive to move into this position. Your role is to advise rather than to execute, and this can be a challenge for some personality types. NEDs also have to get used to the fact that they no longer have access to all of the information in the organization and to all of the employees – in most organizations, the NED’s information comes through the executives, and it can sometimes be a challenge to work out what you need, and how to obtain it. Any new NED should be prepared to spend quite a bit of time making contacts throughout the organization – a good and well-structured induction period is important.
Executives who want to become NEDs should appreciate that it can be difficult to obtain their first role – as with many jobs, the best qualification for recruitment seems to be having a similar job to start with. You should be prepared to network a lot, and to accept roles that are not exactly what you were seeking, just to get the term ‘NED’ onto your CV.