Non-Executive Directors – Trident Group We are looking for experienced Non-Executive Directors to join our Group Board As part of the Group’s ongoing succession planning for the challenging and exciting times we face, as economic pressures on our customers increase and the demand for our services continues to rise, we are looking for three experienced […]
Trustee – Bliss Organisation: Bliss Reference: Scotland Trustees Vacancy Type: Trustee Deadline: 8th July 2019 Region: Nation Wide Vacancy Details Over 100,000 babies are born needing neonatal care in the UK each year. That’s 1 in 7 babies, or over 300 babies every day. Would you like to make a difference to the lives of […]
Governor – City of Bristol College Business / Organisation Name: City of Bristol College Business / Organisation Sector: Public Business / Organisation Website: http://cityofbristol.ac.uk Business / Organisation Type: School, College or University Role Title: Governor Remuneration: Expenses only Role Description Are you interested in Further and Higher Education and Training? At City of Bristol College […]
Non-Executive Director – Plymouth CAST Business / Organisation Name: Plymouth CAST Business / Organisation Sector: Public Business / Organisation Website: http://www.plymouthcast.org.uk Business / Organisation Type: School, College or University Role Title: Non-Executive Director Remuneration: Expenses only Role Description Non-Executive Director with Finance Background needed to support a Multi Academy Trust Board. We are looking for […]
Non-Executive Director – Monarch Solicitors Location: Manchester Date Posted: 10/06/2019 Closing Date: 01/07/2019 Would you like to be part of a hugely exciting organisation and help to drive its strategic agenda? Monarch Solicitors have a fantastic opportunity in Manchester city centre for a Non-Executive Director with a legal background to their Board. The position of […]
How to become a Non-Executive Director – 1-day course for aspiring NEDs The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge. This one-day interactive course is aimed at aspiring NEDs and […]
Institute of Directors commissioned report highlighted value Non-Executive Directors bring to family businesses
In 2015, then Ulster University post-graduate Caoimhe McGuinness explored the role of Non-Executive Directors (NEDs) in SMEs in Northern Ireland in a report commissioned by the Institute of Directors.
Interviews were conducted with executives and non-executives on company Boards including family businesses, and every Director interviewed felt the NED contribution undoubtedly added value to the firm, with most believing the NED role helped improve profitability.
The key differentiator between a family business and other private sector companies tends to be the breadth of experience round the Boardroom table. A family firm often grows organically and family members who join may not have benefited from working in another company or from specific training in running a business. While this isn’t of itself a handicap to business success, it can result in a narrower view, which could limit growth potential.
And that’s exactly where an independent, NED can add value to a family business.
Strategy formulation was considered one of the most important roles a NED plays. Directors often get caught up in the day to day management of the company so an independent outsider with time to devote to developing a strategic plan can be extremely valuable.
A NED can act as mentor providing ‘wise counsel’ to the executives, particularly the Managing Director, offering a ‘shoulder to cry on’ and providing advice from someone who understands the business but is not involved in day-to-day operations.
Challenge and credibility
When it comes to Boardroom decision making, sometimes it takes an outsider to challenge the decisions a Board is making, and to question the potential impact on the health of the company. This is why the NED needs to maintain their independence. It is worth noting that the majority of respondents in the IoD research stated that the NEDs had helped them greatly by forcing them to arrive at decisions faster, ‘pushing them over the final hurdle’.
The presence of a respected and competent NED on a Board helps enhance the company’s reputation and credibility; which is particularly beneficial when it comes to sourcing external financing. A competent NED will also keep the Board right on issues of good governance.
Finding your NED
I’ve referred several times to independence and competence. These qualities should be at the forefront of your mind when you are looking for a non-executive director for the family Board. You also need to think about the gaps in the current Board’s experience, knowledge and contacts.
It might be easy just to approach a family friend or your old bank manager, for example, but the choice of a NED should be considered with the company’s strategy in mind. If, say, you’ve never exported and want to grow the business in that way, you’ll want someone with experience of overseas markets. Or if the company has grown quickly but your structure and governance procedures haven’t changed, then a NED who has the IoD’s Chartered Director qualification will have the necessary experience and skills.
IoD Northern Ireland’s NED Register already contains the biographies of over 30 potential NEDs. Everyone included has undertaken training in good governance, many are Chartered Directors or hold the IoD Diploma in Company Direction, and all are committed to continuing professional development. Find out more about the Register at www.iodni.com/the-ned-register IoD can also identify potential NEDs not on the Register if you can’t see anyone with the experience you need.
Yes, believe it or not, if you have a reasonably good appreciation of business, corporate governance and sustainability risk, you can offer valuable support to Boards of private companies, charities and others. How?
Well, you need to have a good appreciation of what Corporate Governance is! You may be familiar with GRI's Governance pages. Or you may be aware, and have used, the governance indicators from the SGI. Alternatively you may know about sustainability as a set of "ESG" issues - environmental, social and governance. This is the language of the financial and investment community and is commonly used on listing rules in stock exchanges.
"A six year old could be a good NED, it's about taking a fresh angle, thinking creatively"
The course took place in Bristol one wintry day. We learned about the NED role, Directors' duties and liabilities, NED skills and case studies, and how to secure a role. We also learned that most practicing NEDs don't fully understand the role of a NED (allegedly).
"A non executive director was a bit like a bidet - no one knows what it does, but it adds a bit of class" Michael Grade, former chair, BBC
But business sustainability professionals naturally have a strong moral compass (allegedly), and as long as they understand that they are there to support the success of the company and its Board then they can be of benefit.
NEDs and Directors have the same liabilities but different responsibilities. Independence of NEDs means they can be the fresh pair of eyes and ears to support (i) the way the company meets its commercial objectives and (ii) the effectiveness of the Board.
We learned that Boards often forget that one of the key motivations for Governance is ensuring the availability of human resources (not just financial resources). Sustainability practitioners understand business success from a wider perspective (sometimes called People Planet Profit), and HR quality, safety and metrics are core to their work.
Also, we learned that many Boards may see financial risk as their highest risk, but in fact it's not. Reputation is the biggest risk factor. Sustainability professionals understand how different functions, operations and performance can affect reputation (and market cap) as a result of impacts right across the 'value chain' of a company. You want examples? Give us a call!
Also, we learned that Board composition needs to be diverse. Not just ethnicity and gender. But backgrounds, levels of creativity, thinking out the box, risk perspectives from different quarters are all apparently of use to a Board (they just may not realise it though!).
And we'll not forget the statutory duties of a Board with respect to legislation relating to health & safety, environment, corporate manslaughter, anti-bribery, modern slavery... Sustainability people live and breathe this.
The Companies Act 2006 also is hot on ensuring the success of a company accounts for long-term decisions, supply chain responsibility, environmental impact, community impact and reputation (for example). And the duties it confers are owed to shareholders AND stakeholders. Stakeholder engagement is so core to sustainability approaches that it's good to see this in the Act.
So, there are plenty of good reasons why sustainability folk can help a Board. In Bristol, we all thought that if you don't have the qualifications that companies and recruiters list in NED vacancy notices then perhaps they haven't fully understood what's required of a successful Board themselves! Maybe they have, but it doesn't hurt to ring them up and probe...
And if you read the FT, you may have read that NED is role for which no one is qualified.
"The list of attributes required of a non-executive director is so long, precise and contradictory that there cannot be a single board member in the world who fully fits the bill" FT 2013
So, to recruiters and Boards out there, think you know what you need? We learned that it's worth double checking. We look forward to supporting your Board!
About the Author
Alex Nichols provides Sustainability and Corporate Responsibility services for a positive business impact
20 years of professional sustainability management consulting experience.
Solid international experience in sustainability strategy, reporting, materiality, stakeholder engagement, assurance, training delivery.
Clean technology marketing and promotion.
Deep working knowledge of the GRI framework and other reporting guidelines and standards.
Experienced trainer in certified sustainability management courses
Diverse sectors including automotive, construction, mining & metals, paper & pulp, waste, energy, food & beverage, rail, tobacco and manufacturing.
Successful industrial, NGO and government projects.
Global track record: Europe, Turkey, Brazil, Jordan, Malawi, UAE and Australia
When I left the NHS five years ago, becoming a non-executive was just not on my bucket list.
Although I am an NHS lifer, when I left, it was to set up my own health business with a friend and frankly it has been a blast! We have had our ups and downs but on the whole a move from the trials of public sector life, was welcomed. My own business has however given me a different perspective on public service and I think I will be a better NED for it.
My entry point into the world of non-executive recruitment has really come from other people. When I think back over my career that seems to have happened a lot! Someone has said – ‘you'd be good at that job’ and the next thing I would take a pause from what I was doing, check it out with people I rated and the next thing I would be applying for another challenge. So my first tip would be, if you are not sure about applying or have not had any luck so far, listen to what your networks are telling you and test it out with people you trust to give you a straight answer. A NED post may or maybe be for you.
Mandy's tips for applying
Brush up your CV You can get more information about writing a NED CV here
Get to know NED recruiters
It pays to build relationships with specialist recruiters - and don't forget to ask for feedback
Make it personal
Choose a NED role that you can be passionate about
So what are my tips about applying? First, brush-up your CV. Make sure your achievements are FAB. By that I mean, think about your career achievements in terms of ‘Features’, ‘Analysis’ and ‘Benefits’. Can you clearly describe what you did and what you achieved? Can you quantify it? Can you clearly attribute benefits and to who and what? This really helps when you are asked at interview ‘tell me about’ or ‘can you give me an example of when’…
My second tip, the NHS NED recruitment is normally through a recruitment company. Get to know them. If needed, invest in a meeting with a recruitment consultant. They will be able to help you present yourself in the most positive way. More importantly, if you get to a first level interview with them, no matter the outcome, get their feedback. It will really help your interview or to steer you towards future applications.
My final tip is ‘make it personal’. I know being a NED in the NHS is going to challenge me but the NHS is in my soul and has played an important part in who and what I am. It will require big dollops of energy and resilience and a new style of leadership from me. So whatever direction you go in, make sure you choose a NED role that you are passionate about. For me, I am returning to where my NHS career started. The timing is right; it feels a bit like coming home.
If you are a Non-Executive Director are you a guinea pig or a highly trained professional?
Over 130 years ago, in the 1870s, company directors were not very highly regarded. In 1871 Temple Bar magazine refers to them as “Guinea pigs” – “the pleasant name for those gentlemen of more rank than means who have a guinea and a copious lunch when they attend board meetings”
This derogatory term for a board member persisted. In 1895 A J Wilson said “A man who lives by getting himself placed upon the Boards of a number of companies whose business he can have neither the time nor the qualifications to assist in directing, is a ‘guinea pig’.”
They even coined the verb ‘guinea-pigging’ to describe the practice of acting as director of a company for the sake of the guinea fees. It was said that a large number of the ‘bubble’ company boards of the 1928 boom were packed with ‘guinea-pig’ directors.
Fast forward to today – it is 22 years since the publication of the Cadbury report which established our current thinking regarding Corporate Governance and in that period we have made great strides in improving the way the boards of our listed companies are run in the UK.
The UK Corporate Governance Code, even though it only applies to listed companies, has been adopted by the boards of many large un-listed companies and is seen as a best practice guide to running a limited company.
One of the key principles of the Code is the importance of having Non-Executive board members and we have seen the rise in portfolio career directors, typically middle-aged men and women who have retired from their corporate careers and have taken up a number of Non-Executive board positions.
So, are these people “Guinea Pigs” or highly trained professionals?
Unfortunately, despite all the advances in Corporate Governance and the associated pre-eminence of the City of London as a global financial centre, the numbers of company directors who regard their role as a profession in its own right are few and far between.
It is 15 years since the Institute of Directors established its Chartered Director qualification and yet there are now just under 1,200 Chartered Directors sitting on boards out of a total of 5.6million directors registered at Companies House in 2014.
My own experience working with boards of all different shapes and sizes in the private, public and voluntary sectors would lead me to believe that the majority of company directors have no, or very little, training to equip themselves with the skills and knowledge necessary to undertake their roles effectively.
In terms of Non-Executive directors, we still seem to have a number of “Guinea pigs” – the titled, current or former politicians and the well-connected who occupy a string of boards without seemingly having the qualifications to do so.
It is a great thing that anyone with £17, an internet connection and 5 minutes to spare can form a limited company and become a company director – ease of creating a business entity is seen as a major competitive advantage when it comes to inward investment.
However, that does mean that we have a large number of company directors who are blissfully unaware of their duties, roles and responsibilities as set out in the 2006 Companies Act.
Being a company director requires much more than simply knowing the law, however. In the case of Non-Executives, the board’s ‘critical friends’, the skills needed are completely different from that of the executive director.
There seems to be a general disinclination for directors to get trained. Is this something to do with not wanting to be seen to not know everything? – or is there an assumption that if you have got so far in your career as to be appointed to a board then there is nothing more to learn?
Or, dare I say it? – is there a gender factor here? Are men less willing to admit that they need to learn what being a company director entails than women?
Certainly there is no shortage of training courses out there, from half day on-site training costing a few hundred pounds through to the 6 month Financial Times Non-Executive Director Diploma at £5,900 and the Institute of Directors Chartered Director MBA-level qualification at £12,500. (click here to see our directory of NED training courses)
So the question is – if you are a company director are you a guinea pig or a highly trained professional?
A good non-exec director can do wonders for an SME, bringing experience and a different perspective, acting as a sounding board and challenging the exec team to ensure they focus on the right stuff: the important not the urgent, the long-term strategy, good corporate governance and so on. And yet companies don’t always seem to get non-exec appointments right.
I want to explore some of the pitfalls, but first let’s go back to basics:
What makes a good NED?
Sometimes NEDs are recruited for their specialist skills and knowledge or their contacts and reputation in a particular market. Other times, companies just want a generalist who can bring a different perspective. In either case, however, there are certain characteristics which seem to determine success. David Doughty of Excellencia, a seasoned NED, who also works on board effectiveness and trains NEDs, has identified ten characteristics of good non-execs, which, perhaps, could be categorised into three key areas:
Integrity and commitment
As David points out, NEDs, who dip in and out of businesses, need to assimilate a lot of information quickly and get to the heart of the matter. They need to be able to stand back and take a strategic perspective and their judgement needs to be sound.
Integrity and commitment
Obviously, you want a NED with high ethical standard who’ll ensure sound corporate governance and speak up if something goes awry. You also need someone who is motivated to do the necessary preparation (reading board reports and so on) and is not already so committed elsewhere that they have little time or attention for your company. On the other hand, a NED needs the discipline to understand the boundaries of the role and resist the temptation to start actually doing stuff.
NEDs need exceptional relationship building skills. They need to be able to find a place in an established team with people they probably see a few times a month at most. They need to be able to support and challenge; to handle conflict maturely and know how to build consensus. It’s a role that requires the credibility of a good leader but it’s no place for a huge ego.
Finding this combination of talents is a tall order, so it’s not surprising that companies don’t always get it right. Here’s how to avoid some of the pitfalls:
Understand how to use a NED well
Lord (Michael) Grade once likened NEDs to bidets: “No one really knows what they’re for but they add a touch of class”.If you just want a NED as a status symbol and expect them to simply turn up, say something erudite but unthreatening, then approve your plans, then you might as well not bother (unless you work for a plc, when you will have bidets imposed upon you). If you can’t tolerate challenge and rarely listen to anyone else’s ideas, then, frankly, you don’t deserve the services of a good NED. It takes maturity on the part of the exec team (particularly the MD or CEO), as well as on the part of the NED, to make the relationship work.
Be clear about what you need
As with all appointments, the clearer you are about what you are looking for, the more likely you are to find it. Do you need someone with particular expertise or knowledge to plug a skills gap on the board? Is it really important that this person has contacts and a good reputation in a particular market? Or do you just need someone to bring a different perspective and help you stay on track?
Don’t be over-awed by a big CV
If someone’s had a ‘big job’ it’s natural to be impressed. Maybe they built a successful company from scratch or had a senior corporate role where their annual budget was ten times your company turnover. But that doesn’t automatically make them great NED material. They may have an autocratic management style and be used to people falling in line with them. They may have been successful by staying close to the day-to-day operation and not know how to make sense of a business from a distance. In the worst case scenario, their previous company may have been successful despite them.
Don’t over-emphasise sector experience
A good NED will be able to get to grips with the key issues facing a business whether or not they’ve worked in that sector before. Sure, they’ll have to learn about the sector but if they have a strong intellect and the commitment to do so, that shouldn’t be an obstacle. Too many companies seem to look for someone who has worked in an almost identical organisation to their own, but then miss out on the fresh perspectives and insights of someone from outside their own world.
Be wary of people who are too close to you
It’s not unreasonable to start with your own network when looking for a NED, but be objective – is your recently retired pal from the golf club really likely to have all the skills you need? And if he does (let’s be honest, it’s probably going to be a ‘he’ in this instance, isn’t it?) will he be able to challenge you? And what happens if you fall out? You need someone you can work with but who can also keep a degree of distance.
Use a rigorous assessment process
There seems to be a reluctance in some companies to put NEDs through the same selection processes as other directors. Maybe they’re seen as less important or maybe there’s a degree of deference shown to these (generally) older, more experienced people that makes assessing them feel inappropriate. But the quality of non-execs varies and, as with any appointment, you need to know that a) you’re getting a good ‘un and b) they’re a good fit for your organisation. Naturally, I’m going to suggest using a psychologist to find out what they are really like, but whatever you do, do more than have a chat over dinner.
As always, I’d be interested to hear your views: firstname.lastname@example.org.
I really must thank Ian Parker of verve4growth, who knows a thing or two about board effectiveness, for acting as a sounding board about this blog.
If I didn’t send you this blog directly but you would like to sign up to receive these random psychological musings on a regular basis, please register here. Thanks for reading.
Boards of organisations of all shapes and sizes in the private, public and voluntary sectors face new challenges due to the way society expects businesses and not-for-profits to behave.
These challenges have been brought about by the corporate excesses of the last century and the dramatic failures of the financial sector, particularly banking, around the world since the 2008 crash.
Whilst demanding a new way of thinking from boards and their directors, the new legislation and corporate governance code also provides new opportunities for coaches, mentors and consultants to work with boards, either on a one-to-one basis or as a team.
Corporate Governance in the UK as set by the Corporate Governance Code and the 2006 Companies Act has a very different feel to it in the 21st century than in previous times when it was assumed that a director’s duties started and finished with making sure that shareholders received an adequate return on their investment.
Today, company directors are expected to create and maintain a sustainable business which creates wealth for its stakeholders, employees, customers, suppliers and shareholders and adds value to society at large – in sharp contrast to the ‘unacceptable face of capitalism’, asset-stripping, short-termism which was prevalent in the 80’s and 90’s.
In parallel with this sea-change in company governance we have also seen the rise of a new breed of leadership, reflecting the need to engage and empower employees rather than keep their ‘noses to the grindstone’ or their ‘feet to the fire’.
The Board’s prime purpose is to set and maintain the organisation’s Mission, Vision and Values. Often it is the values, which are seen as ‘soft and fluffy’ by a significant number of Small to Medium-sized Enterprises (SMEs) which cause directors the most difficulty.
Yet, as we have seen recently with Tesco, it is when a business loses sight of its core values (protests against new stores and boycotts by farmer suppliers) there is probably much worse to come.
The Challenge for the Coach
Given these changes in the ways boards are expected to work we can expect similar changes in the support that boards and directors require. For example, it is now commonplace for executives to have a personal coach or coach/mentor and the government backed GrowthAccelerator programme, now re-badged as the ‘Business Growth Service’, has funded a number of business coach interventions for SMEs with high growth potential.
Boards are also looking for more permanent support in the form of Non-Executive Directors (NEDs). Looking at the skillset required to be an effective NED it is clear that there is a significant overlap with the skillsets of Consultants, Coaches and Mentors. Indeed many people have built successful portfolio careers by performing a number of these roles at the same time (though probably not with the same client).
Diagram 1: The Board support model
Examining the four roles, it is useful to consider them in pairs, sitting at opposite ends of a spectrum, as shown above. On one axis we have the Coach / Mentor spectrum and on the other the Non-Executive Director / Consultant spectrum. That is not to say that the two axes are mutually exclusive – in any given situation, individuals can perform a number of roles, although one will always be dominant.
In the UK unitary board structure, Non-Executive Directors have exactly the same legal duties and responsibilities as the Executive Directors. In a way, this is what gives them the authority to be listened to at Board meetings – they have just as much to lose as the executives if anything goes wrong.
They do, however, perform completely different roles to the executives, who are full-time employees with functional responsibility for running the business. Non-Executive Directors are part-time, ‘hands-off’, officers of the company who take a longer term-strategic view. The NED role is best summed up by the two words ‘critical friend’, and it is striking the right balance between challenge and support that makes a NED effective.
In the context of supporting the board, a Coach is a catalyst – someone who will enable the board members, either individually or as a team, to develop and face challenges by self-realisation and awareness.
Business Mentors provide guidance from the perspective of having ‘been there, done it and got the T shirt’. The end points of the Coach / Mentor continuum are well understood but there is much debate about where Coaching stops and Mentoring begins. In my experience, at board level, most support is delivered somewhere near the middle of the spectrum – with a mixture of coaching and mentoring as appropriate. This is likely to be delivered to individuals and the board as a whole.
The prime difference between being a Non-Executive Director and a Consultant is that a NED has the same legal duties and responsibilities as all the other board members, whereas a Consultant only has a duty of care to deliver a specified programme of work.
There is a commonly held misconception, particularly amongst SMEs, that having a NED on the board is a cheap way of getting consultancy. NEDs should be wary of this and should try to avoid getting sucked in to a ‘hands-on’ role within the business.
There are times in the life of a business or not-for-profit when it is appropriate for everyone, including NEDs, to get stuck in to resolve specific issues – and there is nothing wrong with this, providing it is not a regular occurrence.
I have known cases where, in order to avoid conflicts of interest, NEDs have resigned from the board, undertaken a piece of consultancy work and then re-joined the board when the work was completed. This is a little extreme, but as with the Coach / Mentoring axis, in reality individuals may be asked to provide a mixture of Non-Executive and Consultancy support and the key is to make sure that the nature of the engagement is fully understood by the board with transparent arrangements for remuneration and performance management.
The Challenges of Diversity
Much is being made these days of the need for greater Board Diversity in terms of gender, ethnicity and disability. There is certainly a body of evidence to support the proposition that a more diverse board is more effective when it comes to making strategic decisions, and I fully support the move towards greater board diversity, especially with regard to having more women on board.
However, there is no clear agreement as to how this increase in board participation by women, ethnic minorities and those with a disability should be achieved. Countries such as Norway and Germany have imposed a legally enforceable quota for gender diversity, but even within these countries this move is not generally supported – especially by the ‘women on boards’ pressure groups. The feeling here is that women should be appointed to the board on merit and not as part of some box-ticking arrangement.
It is generally agreed that the make-up of the board should reflect the demographics of the employees, which in turn should be similar to the demographics of the wider community. The problem is that this is likely to take some time to achieve, and until there is a sufficiently large pool of diverse candidates to draw from, something more radical needs to be done to address the problem.
This is where our pool of talented, experienced, Non-Executive Directors, Consultants, Coaches and Mentors can play a significant role. Due to the ‘baby-boomer’ population bulge, there is a significant number of people with relevant commercial experience ideally placed to support boards as they become more diverse.
Unfortunately, it is these people, often white men, who are classed as ‘male, pale and stale’ and find it difficult to secure NED appointments. As the majority of boards are not diverse and the number of candidates with the desired characteristics, in terms of diversity, is low then this inevitably means that people will be appointed to boards without the necessary skills, experience, background or qualifications – thus reducing the effectiveness of boards which is exactly the opposite outcome to the one that is intended.
There is a solution to this problem and that is to use Associate & Alternate Director appointments to introduce new blood to the board without diluting its effectiveness. Combined with suitable support from experienced board members, this approach can achieve the aims of the board diversity agenda in an acceptable timescale.
Developing Associate and Alternate Directorships
An alternate director is someone who reports to a functional executive director and can take that director’s place at the board if the executive is unavailable. It is a way of ensuring that the key business functions are always represented at every board meeting and, by exposing non-board level staff to the workings of the board, it is a way of succession planning for the board.
Similarly, associate director appointments can be used to add new Non-executive Directors to the board in a non-voting capacity, so that they can gain valuable board experience and grow into the role rather than being thrown in at the deep end.
In both cases, formalised arrangements for coaching and mentoring the alternates and associates by the executives and non-executives are put in place with suitable one-to-one ‘buddying’. This arrangement benefits from the significant skills, knowledge, background and experience of the established directors to bring-on the aspirant directors before their first formal board appointment.
I’m a coach – get me in here!
Boards in general and SME boards in particular are reluctant to take professional advice. This may be due to the common perception that the meter is always ticking, racking up exorbitant bills whenever advice is sought form an accountant or lawyer. But it is essential that boards, in all sectors and of all sizes, take appropriate advice. Insolvency practitioners often tell me that if only businesses with financial difficulties had contacted them sooner they might have been able to save them.
This reluctance to seek external advice is particularly difficult for consultants, coaches mentors and those looking for non-executive director appointments. There are a great many boards out there, many of them are dysfunctional, and would benefit greatly from some external support. However, relatively few make effective use of what is available.
One of the key duties of a board is to manage the strategic risks inherent in the business. Effective risk management and assurance provides a framework for the board to determine how it should devote its time, paying particular attention to the areas where it should seek external advice and support.
The 2006 Companies Act
Companies have been around since Elizabethan times, yet it is the 2006 Companies Act, which for the first time, defines exactly what a company director’s duties are. One of the most important of the seven duties is the requirement for all directors to promote the success of the company.
The Act goes on to explain that this means having regard (amongst other matters) to:
The likely consequences of any decision in the long term;
The interests of the company's employees;
The need to foster the company's business relationships with suppliers, customers and others;
The impact of the company's operations on the community and the environment; and
The desirability of the company maintaining a reputation for high standards of business conduct.
Implications for future coaches and mentors
In pursuit of these objectives, with the goal of creating and maintaining sustainable businesses, boards can make use of the guidance and support provided by Non-Executive Directors, Consultants, Coaches and Mentors.
If you have the skills to work with boards in these roles, then it is vital that you have a thorough understanding of the issues facing boards in the 21st Century which are shaping the way in which businesses of all shapes and sizes in the private, public and voluntary sectors need to be run.
David Doughty is a Chartered Director with a Masters in Company Direction from Leeds Business School. He works with boards and their directors in the private, public and voluntary sectors to improve their effectiveness and the performance of the organisations that they lead. David is a registered and approved GrowthAccelerator Coach and a certified EQ Mentor
Falling foul of the law can have serious consequences for Non-Executive Directors - here are 10 steps you can take to avoid it happening
The 2006 UK Companies Act, which sets out the legal duties and responsibilities of Company Directors, is one of the longest pieces of legislation ever written. Falling foul of the law can have serious consequences for directors including personal and potential criminal liability yet many directors, particularly NEDs, take on their roles in blissful ignorance of the law.
Before becoming a company director you should have a basic understanding of your legal duties and responsibilities and you should check for indemnity provisions in the company articles of association and your Directors’ and Officers’ (D&O) insurance arrangements.
Once in post, here are 10 things you can do to avoid the potential pitfalls:
Remember that compliance is the responsibility of all directors – not just the Company Secretary, Chair, CEO or other Executives.
Whilst individual directors may have particular responsibility for the day-to-day mechanics of compliance, it is the board’s responsibility, collectively, to ensure that the statutory requirements are met. Filing annual returns and accounts may be the job of the Finance Director or Company Secretary but persistent failure to file on time can lead to penalties being imposed on all the other directors, including the NEDs. Make sure that the board receives regular assurance on compliance matters and do not assume it is being taken care of by the other directors.
Check your status as a Company Director.
Many Non-Executives start working with boards as advisors or consultants before they are formally appointed as NEDs and assume that as they are not registered as a company director at Companies House then the law does not apply to them. If you actively take part in board meetings or hold yourself out to be a director then you run the risk of being classified as a “shadow’ or “de facto’ director and thus share the same legal duties, responsibilities and liabilities as the other board members. Make sure that your legal status and that of the other board attenders is clear.
Keep accurate records of board meetings.
Every board meeting agenda should contain an item which gives directors the opportunity to review the minutes of the previous meeting. Make sure that you use this opportunity to make any corrections that are required to ensure that the minutes accurately record the discussions that took place together with any resolutions and actions. Pay particular attention to items where your personal contribution is mentioned. Keep your own copy of board minutes for at least six years after you have ceased to be a member of the board..
Be aware of key statutory filing requirements.
Make sure that you know when key documents such as the annual accounts and annual returns need to be filed. You can use the Companies House web-check facility to check that the business is up to date with its filing requirements. Also be aware of other matters such as certain shareholders’ resolutions, allotments of shares and the appointment of new directors, which need to be notified to Companies House within specified time limits.
Familiarise yourself with the Articles of Association and other constitutional documents.
One of the prime duties of a company director, as set out in the 2006 Companies Act, is to ‘act within powers’. These powers can be found in the company’s Articles of Association together with any shareholder agreements or contracts which form the constitutional documents for the business. As soon as you are appointed to a board you should read these documents and familiarise yourself with the specific requirements for the calling of a shareholders’ meeting or provisions relating to directors’ meetings and remuneration. The board should review the Articles on a regular basis to ensure that they are still relevant to the operation of the business
Take all reasonable steps to avoid conflicts of interest.
‘Declaration of interest’ should be a standing agenda item for a board meeting, giving directors the opportunity to declare a personal interest in an item to be discussed at that meeting. There should also be a register of interests, reviewed annually, which records the external interests of board members and their immediate families. These are both particularly important for NEDs who are more likely to have external interests than the executives. However, simply declaring an interest is not necessarily all that a director has to do to avoid a conflict of interest. It may be appropriate to physically absent yourself from the board meeting for the duration of the discussion of a matter where you are conflicted and have this absence clearly recorded in the minutes. In some cases directors resign their posts and re-join the board once a conflicted matter has been resolved.
Avoid accepting benefits from third parties.
Taking a bribe from a potential supplier is clearly wrong but what about corporate hospitality? As with conflicts of interest, many boards keep a register to record gifts or hospitality given to directors or senior managers, usually above a set amount. They also have specific policies and procedures that directors should adhere to. The best advice though is not to accept anything, even a sandwich or cup of coffee if it could be interpreted as an inducement by a third party.
Watch out for insolvency.
After failing to file your statutory documents on time, the next most heinous crime a director can commit is ‘trading whilst insolvent’. A company is insolvent if it cannot pay its debts when they are due to be paid. Many businesses, especially start-ups or those with high growth can sail near to or actually become technically insolvent. They can then only continue to trade if they have a reasonable belief that they can trade out of their insolvent position. It is vital therefore, for the board to seek external advice from an insolvency practitioner as soon as possible in order that there is independent confirmation of the reasonableness of their position. Failure to act promptly and responsibly can leave directors open to unlimited personal liabilities.
Speak out – do not ignore warning signs.
If you have concerns about any company decisions, or the content of any documents such as accounts or board papers, make your views known. It is your duty to act with reasonable skill, care and diligence. The 2006 Companies Act does not differentiate between executive and non-executive directors – as a board member you are jointly and severally liable for all board decisions and can become personally liable if the board knowingly does something illegal.
Get trained to become a company director.
A Non-Executive Director appointment can be a very rewarding career move but it is not something that should be entered into lightly. In addition to performing due diligence on the business, a prospective NED should fully understand the duties and responsibilities of a company director.
Excellencia provide a 1-day course for prospective NEDs (How to become a Non-Executive Director) for £330 (ex VAT)
Competition for Non-Executive Director roles is fierce so how do you differentiate yourself from the opposition?
There has never been a better time to become a Non-Executive Director. With a growing emphasis on Corporate Governance in boardrooms around the world there is a growing demand for skilled directors who are qualified to be effective board members in organisations of all sizes in the private, public and voluntary sectors.
Yet competition for NED roles is stiff with many more applicants than there are available positions - so how do you stand out from the crowd and get yourself on NED interview short-lists?
Fortunately, there are a number of courses you can attend which will give you the information you need to make successful NED applications. Varying in length from half a day to six months, with costs varying from a few hundred pounds to a few thousand and with venues across the country, there are plenty of courses to choose from.
For what to look for when choosing a course refer to our previous post here
The following table lists courses available in the UK - if you are a course provider and your course is not listed here, please contact email@example.com and we will add it to the list.
Having invested the time and money in attending one of the above courses you will then need to ensure that you make the most of your background, skills and experience by preparing your Non-Executive Director CV and accompanying letter of application.
You will find advice on how to produce an effective NED CV here
Non-Executive Director appointments & Charity Trustee roles in the voluntary sector are a way of giving something back by using your corporate skills for the benefit of others.
If one of your New Year resolutions for 2014 is to do more for charity and you are looking for new and different ways to develop your skills, becoming a non-executive director or trustee on a not-for-profit board, or charity could provide you with a unique opportunity and provide much needed support to the voluntary organisation.
More and more people with careers predominantly in the private sector are thinking about making a change, to do something different and are looking at public and voluntary sector roles. The not-for-profit or charity boards gain often much needed commercial expertise and the non-executive directors or trustees gain insights and knowledge from their involvement in the strategic and organisational development of an organisation.
These roles are generally unremunerated, though some do pay small fees and nearly all pay reasonable expenses - in most cases you will be giving much of your time for free and will be genuinely volunteering.
So, how do you go about getting a position with a not-for-profit or charity board?
The first step is to look around your network on LinkedIn or Facebook to see who else is doing this sort of work and contact them to find out more about what they are doing and to see if there are any vacancies coming up which may be of interest.
There are also a number of web-sites dedicated to filling these roles such as the following:
Competition for Non-Executive and Trustee positions in the public and voluntary sectors is fierce, however so it is wise to prepare yourself before making an application for a vacancy. Find out as much as you can about the organisation, what issues they are facing and who is already on the Board - often this information can be found on their web-sites.
It is also a good idea to talk to the Chair of the organisation informally if possible to see exactly what sort of skills they are looking for in a new NED or trustee.
You can also develop your knowledge of the role by enrolling on a Non-Executive Director training course such as the How to become a Non-Executive Director 1-day course from Excellencia - the legal duties and responsibilities of a company director are just as onerous on the board of a charity as they are in the private sector, some may say they are even more so - so it is good to be prepared!
There may also be other ways in which you can be involved with a charity as a volunteer which can lead to a Board position if you are not immediately successful with a NED or trustee application - the important thing is to get involved!
Tell us a bit about yourself and what role you currently hold?
I am 52 and married with 2 children. I qualified as an accountant in private practice then moved into industry and commerce working my way up the ranks until I became a statutory Finance Director.
I have served as a Pension Trustee and worked in B2C and B2B environments within services, manufacturing and the waste industry, the latter being related to my current role in the renewable energy / energy from waste sector.
As a consequence of moving jobs, sectors and facing different economic challenges I have built up a skill set outside finance including customer facing / commercial skills, supplier and contract negotiation, M&A including a management buy-in and disposal and start up.
By chance, in 1999, I joined a business that was already backed by private equity and we sold this business four years later. The PE investors appreciated the work I had done for them – cleaned up the balance sheet, made a successful disposal and generated a lot of cash through working capital management, but, since I held no equity, I did not participate in their capital gain. It was at this time in my career that I realised how the PE market operated and made a conscious decision to become an FD / shareholder. I got lucky and after 2 interim roles I landed an executive FD role with equity. I remained with this business for just over 7 years achieving an exit for the PE backers before moving into another PE backed start-up renewable energy business. People either love or hate PE backed businesses and thrive or not as the case maybe. They tend to be fast paced, pressurised and never satisfied with the status quo so there are usually deals to be done – be that sale and leaseback, acquisitions or re-financing. I happen to really enjoy these challenges and the last 10 years of my career have been in PE backed businesses.
Why did you decide to become a Trustee?
The PE and tough business environments I have worked in helped me realise that the day you stop learning is the day the competition comes running past you and takes your place. I began studying for an MBA at Warwick University aged 49 and, all being well, I graduate in March 2014. Having the opportunity to mix with people younger than myself, learn from them and feel their energy and enthusiasm has been a real buzz. Interacting with these people helped me formulate my idea to divide my life into 3 when financially able to do so – 1/3 leisure / family, 1/3 charity work, ideally for children or young adults and 1/3 fee earning / keeping the network alive / keeping the brain active either through consultancy or through NED activities.
This is your first time as a Trustee, how did this opportunity come about for you?
It is not quite my first Trustee position – I have served as a Pension Trustee in a final salary pension scheme with a significant deficit and I am treasurer of our local village hall. That said the role with NYWO is a step change and will I am sure open further doors in the future.
In September 2013 Bryan Foss introduced me to a Chairman who was in need of financial skills and was looking for the final piece of a new management board for the National Youth Wind Orchestra of Great Britain (NYWO) and on 1st November I took up the role of Honouree Treasurer. This role ticks both the charity and the NED boxes for me – I can help this organisation restructure, I can save them money and I can bring in my executive experience and contacts to assist if relevant.
Do you feel your ‘personal brand/reputation’ played an important part in hearing about this role?
Not really; to be fair I have only met Bryan once when he lectured at an FT NED event and was kind enough to give me 1:1 advice at the end about NED roles; since then we have kept in touch via LinkedIn. Bryan probably took a view when he met me and / or studied my LinkedIn profile and network and may have referenced me (I am not sure). I got this role because I networked into meeting Bryan and he was prepared to put me forward – I think being in the right place at the right time was the key factor and being willing to help a contact of his.
Knowing the importance of personal branding we asked Bryan Foss what made him recommend Colin. Bryan replied…
“When the chair shared his problem at short notice to me, about 4 people came to mind that I could recommend. I connected them directly to the chair, told each of them that he was someone I trusted and described each of them to him in a sentence from my own perspective. I have only met Colin once and Colin stayed in touch via a few emails over a period of months. But during that time Colin made a good impression on me and I got a good sense of who he is. You could say I ‘got’ his personal brand, values and expertise.
The chair worked through these candidates and some dropped out (mutual decision) for timing or geographic reasons. Colin connected directly, met and hit it off immediately”
What ‘networks’ have you joined in order to help you learn more about the NED/Trustee world?
Becoming a NED will require me to learn new skills and make different contacts so in early 2013 I joined the FT Non Executive Club and began my quest to find out ‘how you become an NED’ by attending meetings. It was here that I learned that landing your first NED role was harder than landing your first executive role and that you would kiss a lot of frogs on your journey but if you persevere, are determined and fortunate you will find roles that match your skills and interests and you will make a valuable contribution to other businesses.
I am open to joining others in time and thank you for the opportunity to join The Non Exec Hub.
How long has it taken you to find your first role? Share with us a bit about your journey to get to this stage?
I made my mind up at the start of 2013 to find out more about becoming an NED – I then met Bryan who told me that the sooner I started out on that path the better since retiring from an executive role one day and starting an NED role the next is almost impossible and unlikely to be successful. So it has taken about 6-8 months.
What skills or attributes do you believe you bring to the board over and above what the Executive/Board bring?
Financial, tax, dealing with banks, auditors, insurance brokers, investors, shareholders, working capital management, cost reduction, M&A, general management, commercial / negotiation skills, Board experience, raising finance, governance
To become a Trustee, did you do any extra training or find a mentor to help you? How were they helpful?
Whilst studying at Warwick I have received career advice and the opportunity to have two years free mentoring from an alumni of the university. Meeting these people and being given the opportunity to discussing future plans helped enormously.
What part has you networks / connections played in helping you find this role?
Very significant, I have learned over the years that you must begin planning for your next role the day you start your current role. It is in your current role that you will meet new people who want to do business with you – if you impress them and work professionally with these people they will help you in the future. People still do business with people.
You cannot know too may good people.
What tips would you pass on to someone looking for their first NED / Trustee / Chair role?
I am somewhat of a novice in this respect and perhaps not qualified to answer but if pushed it’s the usual qualities – determination, drive, ambition, do not take setbacks personally. There are roles out there you just need to network into them
Looking back on your journey, is there anything you would do differently to speed up the process of finding a role as a NED/Trustee?
Start sooner, forward-thinking employers should be open to their executives taking on NED roles as long as they are not in competing businesses. It is an opportunity to share ideas, learn best practise.
I could have started in my mid 40s and by now I may have built up a portfolio. That said I am where I am and if you read the above the words lucky or fortunate appear more than once – I feel I have been lucky but I am a follower of the South African golfer Gary Player who was quoted as saying “the harder I practise the luckier I get”. In other words you get out of life and business what you are prepared to put in.