REASONS AND BENEFITS FOR USING NON-EXECUTIVE DIRECTORS

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This week’s blog comes from guest blogger, Mark Roger, director of Vivolution Ltd.

One of the hardest decisions for any start up and entrepreneur is recognizing and accepting that they need managerial support. But determining when this is required is often a challenge and a topic of hot debate.

All too often it is at the point of seeking external investment that many young companies are told ‘you don’t have enough experience, come back when you have a CEO’ or ‘the company is too amateur or naïve to secure investment’. This can be exceptionally disheartening and frustrating and potentially lead to otherwise viable business opportunities folding before they even got started. It’s not necessarily the idea or business that was bad, simply that the company needed some help to get it off the ground.

Well it doesn’t need to be this way and by being smart in your managerial business development you can not only bring on some much needed expertise but compliment with credibility and experience that will help unlock the door to potential investors.

The Non-Executive Director is the best kept secret of most successful companies. Whether a temporary appointment or a full time fixture, the non-executive director contributes a wealth of knowledge, experience and contacts to the business.

A company does not have to be well established to be looking to bring a non-executive director onto their board. In fact it is strongly advisable for start-up companies to search for and recruit the perfect person to be a non-executive director for their organisation.

But why do you need one?Apart from adding that ‘expertise’ and making your company appear soundly structured, the non-executive director has a lot to contribute. Providing they are carefully chosen, there are a great number of benefits to your company.

Bringing a Non-Executive Director into a company can be a very smart move for CEOs, CFOs and for the Board, particularly at times of significant change or upheaval. The objectivity and experience of the right Non-Exec will be a great asset for businesses of all sizes, particularly start-ups.

A Non-Exec Director’s experience in the following areas can be invaluable:

  • industry contacts and knowledge
  • strategic vision built on his/her past success as a Board director, for example – assessing new markets or a company acquisition or fund-raising. The recent recession has given directors a lot of invaluable knowledge and experience for dealing with distressed situations as well.
  • intelligent questioning “Why is the Company doing that?” and gentle challenging of a Board-assumed direction, to ensure the strategy is right for the business.

It is becoming more common as a condition of a Private Equity funding round that a specified Non-Executive Director with industry experience is appointed.

Network of contacts

The most successful businesses are connected. Networking involves making great connections and keeping them. It can be a time consuming and difficult process to build up a trusted network of contacts that you can call on for expertise when you need them. Relationships take time to develop, and you just may not have that time to devote to networking. A non-executive director usually offers a diary of excellent contacts to go along with all their experience. Years in their chosen field has earned them the respect of their peers and fellow businessmen/women. If you need to make an important connection to help further your business, the non-exec will probably be able to make an introduction.

For start-ups this could mean connecting you with a supplier, distributor or potential client that could really boost your productivity or trading. For more established companies this could be a marketing guru or potential partner, which would add new dimensions to your business, or mark a change of direction.

Past experience

The non-exec is an experienced business person who has probably helped a number of companies find their feet or survive through some tough times. There will not be many things that this person has not experienced and dealt with before. You can feel safe in the knowledge that, no matter how troubled you may be by an issue, your non-exec will most likely have dealt with this issue before – or know someone who has! They will be able to rationalize any worries and assist your board and managers in setting clear tasks to achieve what needs to be done.

The bigger picture

The non-executive director does not work with the company full time. They have no interest in the day to day running of the company but are there to focus on the Big Picture. What is the direction of the company? Are targets being met? Who is the growing competition, and what are the plans to keep ahead?

Often boards can get bogged down in the detail of some fairly insignificant day-to-day management and structure and lose track of the wider issues.

The non-exec will ensure that all board members are aware and acknowledging changes in the environment (economic, socio-political etc) and implementing strategy to deal with this. Having seen changes sweep over the business sector in the past they will be able to advise, with confidence, the direction they think it may go and how you can place yourselves to achieve success.

You will be amazed at what they will notice that other board members may miss, and again how beneficial your non-executive director’s contacts are at sounding an early alarm!

Impartial view

Because this expert does not work with you day to day, does not engage in office politics and retains their independence, they are able to offer unbiased, constructive criticism at all times. All boards try to behave as professionally as possible, but there are times when they are only told what they want to hear and very important lesson learning opportunities can be missed.

When you have a non-executive director casting their eye over the way the business is conducting its affairs, you can be assured they will ask probing and pertinent questions, in order to get to the real detail. They can ask the difficult questions because everyone understands that they are doing it purely for the good of the company and not for the benefit of a personal agenda within the company.

This does not mean that they will be constantly criticizing, but rather encouraging the board to be accountable for decisions they have made, and praising them when they have achieved good work (even at times where it may not have gone to plan).

Compliment the team

A good managerial team is one with a broad range of personalities, strengths and experiences. Great talent and intuition can be lost or overpowered by stronger voices if it is not nurtured. A non-executive director will often spot those people whose potential isn’t quite yet being fulfilled and offer advice and support in order to grow their confidence or efficiency. In small companies and startups it is not uncommon for a non-exec to work for a short time with the directors to help them identify their strengths and weaknesses and understand how they can work more effectively together by playing on those strengths.

Non Exec Selection

Non-executive directors should be chosen with regard to the balance of skills and experience already in existence within the team and with a view to supporting any areas that might be lacking. They should be capable of providing an independent and impartial view of the board’s considerations and decisions while also identifying strongly with the company’s affairs.

Pragmatism and the ability to compromise are also vital. The demands of the role call for courage, integrity, common sense, good judgement, tenacity, diplomacy and an ability to listen carefully and to communicate with clarity, objectivity and brevity.

The specific background, experience and special disciplines required of the non-executive director will naturally depend on the qualities of the other directors on the board and the particular company concerned. Board-level experience of larger – but not necessarily related – enterprises is often needed. Business acumen and the kind of mind that focusses clearly on the matters in hand are essential.

Numeracy and the ability to gain an adequate understanding of the company’s finances, management, employees, special capabilities and markets should also be ascertained when selecting a non-executive director.

For investors knowing the company has recognized their limitations and sought credible expertise to bolster the business is a great positive and more likely to enable the company to attract the investment

You really don’t need to take much more time considering whether your business needs a Non-Executive Director. They are an incredibly valuable asset to any company, at any stage and you will quickly start to reap the benefits.

 

 

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3 Comments on “REASONS AND BENEFITS FOR USING NON-EXECUTIVE DIRECTORS”

  1. Im starting to look at becoming a Non Executive Directors and was discussing with my colleagues where to get NED training? I know that the FT NED club, https://www.nedonboard.com/ and Non Exec Directors.com do it but was looking for advice from anyone who has completed the courses?

  2. Hi Melissa,
    In term of training, it depends on the position you are looking for. An NHS non-exec, investing NED ( start up) or PLC non-exec are really three differents group. In term of training, FT NED club is focusing on listed companies. I have not done it , but it seems ok. NEDonboard training is really good. This is the one I would recommend. It is the most serious organisation dedicated to non-execs. I particularly enjoyed their events. Non Exec Dir .com did not bring me anything. You need to meet the board and go offline.
    Best wishes,
    Peter

  3. Hi Melissa,

    I attended a seminar held by nonexecutivedirectors.com last month and it was really eye-opening. I have heard all of the companies that you have suggested are reputable, however, my experience of NEDonboard wasn’t the best. I say that because their roles weren’t desirable. I would suggest nonexecutivedirectors.com, sorry for giving you contradicting advice ^^. just my experience. All the best with your training!

    Regards,

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