Today’s business leaders are faced with an ever-growing list of challenges, with each one adding a layer of complexity to the day-to-day running of their business. Traditional issues such as dealing with competition, change management and staff development have been joined by more complex, current matters such as cybersecurity and digital transformation.
For a lot of modern businesses, this means looking outside their organisation to access the necessary guidance and skills to help drive their business forward, such as the recruitment of a Non-Executive Director.
The role of a Non-Executive Director is to contribute to boards and provide independent oversight that challenges executive directors in a constructive way.
Furthermore, NEDs typically have specialist knowledge in key areas of industry or a profession that requires expertise. The knowledge they are expected to bring to a board is highly valued.
One of the principle tasks of a Non-Executive Director is to monitor the governance process whilst making contributions to development strategies. It is the ability and the capacity to constructively analyse suggestions that enable executive board members to reach informed decisions.
Following a number of high profile failures within the corporate space, the new Corporate Governance Code (GCG) states that all FTSE 350 boards must now be made up of over half Non-Executive Directors.
The reasons for this is to ensure all boards are populated with executives that have the right skillset and knowledge to lead companies in the right direction.
With advancements in technology gathering pace, the digital age is transforming industries across the board. As a result, businesses need to find increasing levels of value in independent perspectives.
How Are NEDs Defined?
Although a NEDs role is to provide external council, they are still held accountable under the same legal duties, responsibilities and potential liabilities as any member of the core management team.
In the Cadbury Report 1992, Non-Executive Directors are described as “Those whose fees and shareholdings are independent of the management team and from any other business relationships which could materially interfere with the exercise of independent judgment.”
NED’s therefore have a personal interest in the company and are expected to make honest judgements and act in good faith. The involvement of a non-executive should always be in the best interests of the company and to exercise due diligence, care and skill.
The qualities that NEDs are expected to bring to the board are varied, but include the likes of experience, specialist knowledge, impartiality, independence, and diplomacy. They may also be asked to act as mentors to senior managers and attend networking events to identify business opportunities and build relationships.
NEDs must be able to solve problems effectively, communicate with third parties and ensure audit requirements are satisfied. Non-execs are valued for their clear, independent perspective and are expected to provide constructive criticism on ideas, plans and policies put forward by executive directors.
Should disputes between executive directors arise, NEDs may be asked to intervene, especially if the dispute crosses their area of expertise and experience.
They may also be assigned with maintaining good relationships between shareholders and executive directors. It is not unusual for NEDs to be instructed to act as an intermediary to represent the company outside the boardroom, liaising with bankers, investors and other parties.
Non-execs may prevent executive directors awarding themselves excessive remuneration and devise sensible pay packages that won’t compromise the ongoing operations of the business.
Striking The Right Balance
Another key role of the Non-Executive Director is to select the executive directors for the board. NEDs that have had previous experience on a board can better determine whether a suitable balance is maintained.
The specialist expertise NEDs bring to a boardroom can play a pivotal role in keeping a business moving forward. Non-execs can add a great deal of value to the wider economy by taking part in ongoing training and providing research and analysis with developments inside the company and the industry sector as whole.
According to Gerry Brown, author of The Independent Director: The Non-Executive Director’s Guide to Effective Board Presence; “The independent board member needs to have a network of contacts to assist or enhance the business they join.” For any business looking to recruit a NED to their board, a candidate that can offer a wealth of contacts relevant to their industry is a highly valuable commodity.
Non-Executive Directors play a valuable role within a boardroom and following GCG recommendations, more companies are headhunting NEDs they feel can add real value to meetings and the growth of the company.
With many companies going under due to what has been described as “complacency”, “delusion” and “groupthink”, the demand for Non-Executive Directors is likely to continue.
The increase in the number of job adverts appealing for NEDs is testament to how important executive directors value the input of experts that can objectively challenge existing strategies.
If you believe that your business acumen and experience could prove useful as a Non-Executive Director then explore how our exclusive network could help you here. We offer members all of the training, coaching and development tools needed to effectively transition and succeed.