I suspect that many people have no idea what a big impact non-executive directors (NEDs) can have on an organisation.
If anything, the man on the Clapham omnibus probably thinks of non-execs – if he’s heard of them at all – as white men with grey hair who get together every so often for a quick meeting and a decent lunch, in exchange for a sizeable chunk of change.
Although Boards are struggling with many issues – and diversity is one of them – this is a very outdated view of a NED. A good NED can be an extremely valuable (if often unsung) resource for the Board and for the business as a whole, and the role of the NED has become increasingly significant in recent years.
NED responsibilities include contributing to developing the corporate strategy, ensuring that reporting is accurate, and checking that the risk management system for the company is robust and comprehensive. They also work on remuneration and succession planning for the executive team. They have a role in assuring compliance with governance codes, ethical standards and best practice, as well in protecting shareholders’ interests. And because (if independent) they have no financial stake in the business other than salary, they should be able to provide an objective view.
NEDs should be able to contribute their expertise in other companies and other industries, enabling the Board to see different perspectives. Because of their experience ‘from elsewhere’ they may be able to see risks and opportunities that the executive team has overlooked. But they need to understand this business well enough that their advice doesn’t have a negative impact…
And while the Board should function as a team, executives and non-executives together, the NEDs are also expected to monitor the behaviour of the executives, and to challenge them on their decisions.
All this is a difficult balancing act; the executive team probably hold their roles because they are highly competent, strong-minded and forceful characters, with a great deal of expertise in their areas. A good NED will be able to provide a counterpoint to the existing team, while not being drowned out by it.
Why mention this? Well, the NED awards are coming up again, with awards available in 5 different categories: FTSE 100; Not-for-Profit or Public service; Quoted; AIM companies; and unquoted companies. And there’s an overall winner too: last year this was Mary Francis, Senior Independent Director (SID) at Centrica, who was commended for her role as SID and as Chair of the company’s Corporate Responsibility committee.
There are just over 3 weeks left to nominate before the October 21 deadline; is there a NED you feel has excelled this year?
Lucy is Editor at Corporate Eye