Non-Executive Directors - why your business needs one
By Ian Ashforth
You may have considered hiring a Non-Exec for your business or perhaps felt it was not appropriate for your organisation. However, having a Non-Executive can benefit ambitious start-ups, SMEs and even large corporates.
Non-Executive Directors (NEDs) can play an important role within a business. They sit on the board of a company but do not form part of the Executive Team Management meaning they can provide an impartial view without the conflict of having to manage the day-to-day operations of the company.
A NED is often appointed to support and challenge the leadership team become involved in strategic policy making and, of course, act in the interest of the company’s shareholders. A Non-Exec’s contributions are always one of guidance and advice, but they can also be useful to aid decision-making, building business relationships and assist company growth. They will access useful networks and possess valuable sector knowledge and expertise.
Benefits of Having a NED on the Board
A Non-Executive Director is typically chosen based on their experience, reputation and understanding of the business area. This individual is likely to be professionally qualified, with a strong background in corporate governance and risk. They have usually worked at a ‘C-suite’ level in at least one other previous company.
A Non-Executive Director on the board of a company can offer a number of positive benefits. The appointment of the ‘right’ NED can bring a plethora of additional attributes to the company.
Many start-ups, during a growth phase or after a large funding round, appoint NEDs. Non-executive directors provide guidance, connections and a fresh perspective. They are sometimes required by high-profile investors in order to introduce a form of monitoring and mentorship from a more experienced figure. They could be a former CEO of a successful company within the same sector, an academic within the field that the company operates in or any other professional with the relevant expertise
Despite not being involved in the day-to-day management tasks of their executive counterparts, they do have the same responsibilities, legal duties and potential liabilities of any other director.
Let’s take a closer look at the main benefits that a NED typically provides:
Recruiting a non-executive director (NED) can help a small business gain experience, knowledge, contacts, and ideas, as well as provide constructive criticism – all of which cannot fail to be of value to a company regardless of its size. A NED can fill a gap in a small business owner’s experience or can add industry knowledge of a specific sector that the business is targeting.
Most NEDs have usually helped several businesses find their feet, grow, or survive tough times. And, if a NED is faced with a situation they have never dealt with before, they’ll probably know someone who has.
Often, NEDs have helped many young companies during their career, and have often run their own organisations. This means they have been through the ups and downs of entrepreneurship before, and they have already faced sector-specific challenges. In the biotech sector, for example, it may be advisable to hire a NED with previous experience of medical regulatory approval, so that they can direct the company through such a challenging and crucial stage for the business.
A Fresh Perspective
A NED doesn’t work with a business full time and is less concerned with day-to-day issues but will instead look at the bigger picture.
What is the direction of the business? Are targets being met? What environmental changes might affect the business? Which competitors should the business watch out for and what are the plans to keep ahead of the competition? They will have the ability to advise with confidence and make unbiased decisions in the interests of the business. By not partaking in the day-to-day operations of a business, NEDs keep a relatively fresh and unbiased perspective on growth, competitive advantage, internal management choices etc.
Network
A successful business is a connected one, and a great way of making connections is through networking. However, for a small business it can be time consuming and can often prove difficult to build a trusted network of contacts. A NED, in many cases, can offer a ‘little black book’ of relevant contacts that align with their own experience. This could be suppliers, distributors or potential customers to help boost business or a marketing guru or potential partner to add a new dimension to your company.
Throughout their career, NEDs typically make meaningful connections with other businesses, potential partners, investors and other figures that can have exceptional value for a young company.
An introduction from a NED can save founders plenty of time on negotiating a strategic partnership, which might end up making the difference between success and failure.
Monitoring
Running a company is hard, not just because of the long hours, constant uncertainty and risks, but also because dedicating so much of your time to a single project can skew your judgement of the challenges you’re facing. As Founders, it’s common to fall victim of bad habits such as neglecting key functions or overly worrying about others, resulting in mission creep.
A NED has the objectivity to keep all of that in check, evaluating the business on the basis of clear targets and metrics and redirecting the management team’s focus on the key challenges or goals of the company.
Monitor the performance of the company and offer constructive ideas and solutions, if required. Act in the best interest of the shareholders.
An Objective View
NEDs can round off a board by not only providing experience and knowledge that other directors may not have, but also by being able to take a more objective view of issues affecting the business and offering a wider sense of the possibilities for growth.
If, for example, your company grows and you consider flotation as a way to expand, they can act as a mediator, voicing the pros and cons of such a move. Or, if there is a financial crisis within the company or your market, they can alleviate stress and bring a voice of reason to the table.
So, should you hire a NED?
Of course, that depends first and foremost from the stage your company is at and your growth expectations. NEDs are usually appointed to help provide guidance to the executives during a fast growth phase.
Businesses operating in very specialised sectors which require specific expertise are the most likely to appoint a NED, in order to help them navigate challenging regulatory environment, provide guidance on how to handle intellectual property or how to tackle competition.
In summary a Non-Exec can:
Add an impartial view to the day to day running of the business.
Help ensure that the Executive Directors are operating as efficiently as possible.
Contribute to the strategic plan of the company.
Monitor the performance of the company and offer constructive ideas and solutions, if required.
Act in the best interest of the shareholders.
Add additional experience and credibility to the company board.
Expand the intellectual and strategic resources of the company.