9 minute read
NON-EXECUTIVE
Should you be looking at hiring a non-executive director? Business Cornwall talks to two experienced NEDS about how it could help take your business to the next level.
An executive decision
If you look up the definition of a ‘NED’ in a dictionary, you might be in for a bit of a surprise. It is a derogatory term applied in Scotland to hooligans, louts The popularity and or petty criminals – ‘non-educated benefits of hiring delinquents’! a NED have never Thankfully, in a business context, been greater the truth is altogether more sober and reassuring. A NED is an acronym for non-executive director. And according to the Institute of Directors (IoD), the non-executive director’s role is to provide a creative contribution to a board by providing independent oversight and constructive challenge to the executive directors. HOW DO I BECOME A NED?
WHAT ARE THE PROS AND CONS?
Sarah believes the pros of hiring a NED far outweigh any cons. “Employing the services of a NED is a cost-effective way to bring new ideas to your business and ensure the decisions you are making are the right ones,” she says.
Historically NEDs haven’t always enjoyed the best of reputations and you might be familiar with the old joke “what’s the difference between a non-executive director and a supermarket trolley?”
“A supermarket trolley has a mind of its own, but you can get more food and drink into a non-executive director!”
However, such misconceptions have long been consigned to the dustbin, and the popularity and benefits of hiring a NED have never been greater.
So, what is a NED and how could one benefit your business? They don’t have any responsibility for the day-to-day running of the business and consequently tend to be part-time. But they can add real value to a business through their experience, knowledge and independent perspective. “Removed from the day-to-day running of a business, a NED can bring a fresh perspective and challenge practices that have become embedded within an organisation but may no longer be adding value,” says Sarah Trethowan. “This degree of challenge may not always be a comfortable process for a business owner, but it is a valuable one.”
Robert Salvoni says appointing a NED can help a business “revisit or turbo-charge” its strategy.
“You also get access to their network, and any NED worth their salt should be able to introduce advisers, partners and even customers to your business,” he says. “I think it is important for a NED to at least cover their direct costs to a business, whether through incremental sales or reduced costs, even before adding any less immediate or strategic value. It is really important that a NED, especially to an SME, is not viewed as an overhead.”
On the other side of the coin, rather than looking to take on a NED, perhaps you are ready to be one yourself? Robert Salvoni has some advice.
Being a NED can be incredibly rewarding, providing challenge, variety and potentially a really good career. Personally, I have relished seeing the Cornish businesses I have been involved in thrive, having helped attract millions of pounds of investment and taken on dozens of new employees. However, it isn’t for everyone, and those who do take this route need to understand their obligations, commit to achieving certain professional standards and build up their expertise over time. Just having run a business, even a very successful one, does not give you all the tools you need to support others in achieving the same.
I strongly recommend joining the IoD and participating in their Professional Development Programme, with Chartered Directorship as the gold standard. Just as important as Executive track-record and professional knowledge is NED experience – the classic Catch 22! Fortunately, there is an easy solution. Volunteer as a trustee of a local charity, arts foundation, local business support group or other NFP, ideally while you are still working as an Executive. I still try to balance fee-earning roles with NFPs. Not only can you make a great contribution to causes that you believe in, they are a great learning and networking opportunity which can result in lasting value and friendships. Experience gained in tackling the real challenges of an NFP are pure gold to build your value and currency as a commercial NED.
“They can alleviate some of the pressure and loneliness of running a business. Obviously, this all relies on the quality of the relationship you can build with the NED which is only con really. I would advise a couple of informal conversations before making any commitments to make sure the NED is someone you feel you can work well with.”
But a NED will move you out of your comfort zone, which can be challenging in itself and maybe not for everyone.
“For founders, entrepreneurs and CEOs who are unused to challenge and being held to account, appointing a NED or nonexecutive chair can feel uncomfortable,” says Robert. “However, the boardroom is no place for egos, although they do seem to thrive there! The first step is to recognise that you would benefit from some help.
“Creating and executing the best strategy in a challenging competitive environment, often with limited resources, is a team sport. Sometimes appointing a great coach rather than just a better striker is the best long-term investment a team can make.”
HIRING THE RIGHT NED
Of course, it is important to hire the right NED for your business, and different businesses will have different needs.
There are recognised qualifications you can look for. Sarah Trethowan, for instance, is a chartered director with the IoD and had to study for several years, take exams and prove her NED experience to achieve that status. But hiring the right NED for your NEDs can alleviate business goes far beyond the length of some of the their CV. pressure and “The most important think to look for is loneliness of someone you believe running a business you can work with,” says Sarah. “They will challenge and push you which can be uncomfortable but if you have a sound relationship this will be easier to work through.” Most important is to understand what you need, says Robert. “What is the gap you are trying to fill? Is it industry experience and market knowledge? Is it credibility to attract investment or prepare a business for sale? Is it around motivation and cultural improvement? As well as specific experience, appointing a NED is a great opportunity to introduce diversity of thought, background and perspective to your board and business, so actively try to find someone who isn’t afraid to challenge you.”
And when you are wondering who to hire, ask for recommendations. “Word of mouth is always the best way,” says Sarah. “Ask within your network can anyone recommend a NED. If this doesn’t work there are specific organisations like the Institute of Directors that have directories of NEDs or organisations like South West FD who specialise in NEDs with financial experience.”
Robert agrees. “Once you have a clear view of what you are looking for, use your networks to find some candidates.
Professional search firms have NEDs on their books, but can be expensive. Take recommendations from business leaders you respect, and search LinkedIn! Take time before formal appointment to your board – if the successful
candidate is serious, they should be happy working with you for a few months before you formally appoint them through Companies House.”
Is it important that the NED has specific experience of your industry or business sector?
Sarah says not necessarily. “I’m a generalist so obviously I would say no except for financial expertise. In larger organisations you may have more than one NED so they can bring a range of skills and experience. It’s more important they have a track record of success and understand what is involved in growing a business.” Robert adds: “Sector knowledge and experience can accelerate a NED’s contribution, helping to quickly spot challenges and transfer ideas and bestpractice. Just be wary of conflicts of interest and the potential for a lack of diversity of approach. “Sometimes, personality, inquisitiveness and acumen are more important than being an industry insider.”
HOW EXPENSIVE DO NEDS TEND TO BE?
The cost of hiring a NED can differ greatly, depending on the expertise and experience of the NED. But it’s important to take a holistic approach. “I see it as an investment in yourself and your business,” says Sarah. “It also doesn’t need to be a long-term agreement which will reduce the costs. Given each meeting will only be for 1-3 hours so although the hourly rate may seem high you don’t need that many hours for a NED to be effective.”
Robert advises: “While they generally charge a monthly fee, unlike with consultants, its best that both parties don’t watch the clock. If you expect them to commit serious time in your hour of need, you should also be relaxed if they only attend the odd meeting when things are quiet. Remember, even though they formally work part-time, your NED is a director of your company all the time! The good ones are living and breathing your challenges, making connections, mulling over your issues and opening doors for you day and night. I always recommend reviewing your NED’s contribution every few years, and really just keep them on board as long as they are adding value.”
And, of course, the length of time the NED devotes each month to your business changes case by case.
“This will depend on the needs of the business and the budget available,” says Sarah. “It will also tend to be more intensive at the start and then reduce in frequency and duration.
“For example, I might spend a day in the business at the start with the business owner and then the wider team. Then I come back for a 2-3 hour session to reflect my observations and then we’d agree a schedule for further time I spend in the business, probably half a day once a quarter or an hour once a month.
“I do believe once you feel as a NED you have lost that independence of thought and become ‘part’ of the business it’s time to move on. Sometimes the business owner might not feel they are ready but it’s just time for a new NED with a fresh perspective. I’d said this can be anything between 2-6 years.”
Sarah Trethowan is a Chartered Director with the Institute of Directors, Sarah has more than ten years’ experience as a non-executive director. She co-founded regulatory affairs consultancy TRAC Services in 2001, before selling the business 16 years larer. Robert Salvoni is currently a director of software businesses Bluefruit, Colateral, Everest Media and MyWorkpapers, as well as Cornish stove Manufacturer Anevay and venue Park House Opera.
