Non-executive directors: The voice of reason

 

Non-Executive Directors are likely to play an increasing role in the growth of businesses across the UK in the coming years. But what advantages do they bring?

Non Executive directorsIn recent years, the duties of the board of directors have become more complex – and so have expectations relating to non-executive directors (NEDs).

Although NEDs are not involved in the day-to-day running of an organisation, they can be a key part of its governance process. The major responsibilities of NEDs include contributing to the overall strategy of an organisation, ensuring that risks to the organisation are minimised through financial oversight and risk management, scrutinising the performance of executives and, when necessary, removing senior management and appointing their successors.

Although NEDs are often viewed as the preserve of FTSE100 companies, this is not an accurate perception. NEDs are to be found in a wide range of organisations, including charities and the public sector as well as corporations of all sizes. The portfolio of the typical NED might include four roles: two reasonably sized corporations together with one small or medium sized enterprise (SME) and one not-for-profit organisation. NEDs may have knowledge of the particular sector that an organisation operates in, but many do not – this is not seen as a disadvantage due to the wealth of experience that NEDs provide, as well as the universal nature of corporate governance.

On the international side, NEDs are greatly valued as ambassadors for their organisations, with many of them having experience of overseas businesses. “It can be very useful to have grey hair in the room if you are talking to an overseas organisation,” observes John Jeffcock, Chief Executive of Winmark Europe, which operates the Non-executive director Network. “NEDs are becoming much more involved in the business and are spending more time visiting foreign manufacturing operations, as well as more time on the floor in the business.”

At the same time, John reports a shift in the demographics of the NED. “Around three quarters of our membership is male, and most of them no longer have executive roles,” he says. “However, a lot more women are now joining the network. What’s interesting is that many of them also have current executive roles. I expect that this will change over the next ten years as more women build a portfolio.”

Role of the NED network

As their roles evolve, NEDs are taking a more proactive approach to learning from their peers and sharing best practice. As such, organisations such as the NED Network are playing an increasingly valuable role in supporting them. Through the network, which represents around 150 NEDs and 450 organisations, non-executive directors can keep abreast of a diverse range of topics including regulation, business ethics, international expansion, debt finance, company failure and cyber security. The network also focuses on specific board topics such as executive remuneration, governance, stewardship and succession planning.

For some time the network has enjoyed a close association with Lloyds Bank, to the mutual advantage of both partners. “There’s a really strong two way information flow from the relationship,” says Simon Palmer, Head of Strategic Finance at Lloyds Bank. “On the one hand, we get the benefit of inputting some intellectual capital into the network, so we try to share some of our proprietary information in areas such as economic forecasts and international hedging or debt capital markets. On the other, we gain some unique market insight and are able to develop some beneficial relationships – we’ve had some really interesting business introductions as a result of our involvement in the network.”

Going forward, it is likely that the role of the NED will become even more demanding, with workloads continuing to increase. As boards come under more pressure from shareholders and clients to grow their businesses, it will be up to NEDs to evaluate opportunities objectively and ensure that growth is pursued in a considered and professional way. “The challenge for NEDs will be to remain clinical and objective without getting swept away with the excitement of expansion,” concludes John. “They have a key role to play in providing the voice of reason – while still being entrepreneurial enough to support companies in their growth ambitions.”

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