Oct 072013
 

At a time when businesses need to focus on growth why is it that most Non-Executive Directors see their primary role as something else?

Growth businesses need contacts, funding, relationships, coaching, governance, risk management and more. Which of these do or could non-executive directors provide to businesses?

By Bryan Foss and Alison Bond

non-executive directorA recent mini-survey of non-executive directors and CEOs provides at least some insight, but what do the findings mean for what businesses have achieved? What should boards do differently in future when selecting, using and perhaps moving on their non-exec board members? Are non-execs valuable or a costly distraction for a growth business?

Our survey respondees were about 60% ‘primarily Non-Executive Directors and 30% Executives with a Non-Executive Director role, with the final 10% representing prospective Non-Executive Directors, so a very experienced and representative group.

We were initially surprised to see that Non-Executive Directors rated their contribution to the organisations they serve highest on Governance, challenge and risk reduction, which could be considered supportive, or perhaps constraining, in different circumstances. Growth and mentoring came firmly second, with Stability and cost reduction to follow, then finally contacts and funding contributions as the lowest self-ratings.

The respondees considered that the CEO’s they work with have very similar views of the experienced priorities of challenge, governance, risk reduction, growth, mentoring, stability, cost reduction, contacts and funding as delivered by the Non-Executive Directors that they work with.

This tells us that:

  • Non-Executive Directors already know (and are quite comfortable with) their prime time being spent in areas that constrain the business rather than those that grow the business
  • Board and executives are not happy that Non-Executive Directors contribute with sufficient priority in areas such as contacts, funding and growth, but appear to keep replacing their Non-Executive Directors using the same appointment approaches and criteria, expecting things somehow to improve
  • Those businesses that need Non-Executive Director support with growth issues will need to develop different ways to find, brief and engage with new Non-Executive Directors to achieve their goals.

We find these points very worrying. Shareholders expect growth from their investments and Non-Executive Directors are accountable to shareholders. Thinking about the status quo which currently exists in Non-Executive Director appointments, if organisations persist in the current strategy all we will have are stolid, inward looking organisations intent on protecting themselves. This certainly isn't an attitude that matches well with many stages of a company’s growth development and not only will this fail to inspire investors but will stymie talent and innovation and create no new wealth, with all the associated issues this will cause.

Alternatively Non-Executive Directors will be marginalised and ignored as the CEO drives the business to their personal strategy and for the short term, without the board’s proper engagement. Seeing challenge wrapped around governance and risk reduction would make something which could be a positive into a negative. The kind of challenge which aligns with a focus on governance and risk reduction is bound to be inward looking and to an extent judgemental, rather than supportive of the measured risks which drive assured growth and rewards.

After six years of economic constriction organisations need to be looking outward and onwards; at growth and connections, at creativity and developing free thinking. The decade of command and control needs to be replaced with a more empirical and outward focus.

Where the winners will be those who make a positive and visible difference, clearly they have to follow the rules, but that has to be hygiene factor now and not a goal. Any organisation that has to pay people to be on their board just to ensure the rest of the board keeps to the rules has not learnt the lessons of the last decade and will surely be punished for such negligence of opportunity.

Now is the time to use all that has happened to make a difference, to show the market what good really looks like and to build on that to bring the team with them. It is going to need a new look at decision making and possibly some new faces as Non-Executive Directors. It is vital that the last ten years of lessons have not been in vain. To keep looking for those mistakes at the top of organisations rather than at future possibility is frankly missing the point and also the value
of positive governance.

As one respondent commented on the opportunity provided by a well-chosen Non-Executive Director,

‘NEDs bring experience without an agenda and, if the Exec team embrace that without being
threatened, they can access a wealth of support, both personally and commercially’

Bryan Foss & Alison Bond

Bryan Foss is an independent board level advisor, business author, non-executive director
and visiting professor with Bristol Business School.

Alison Bond is an expert researcher and director of www.thehaloworks.com whose aim is to
help the people in their client boards and businesses to be the best that they can.

Jan 232013
 

Don’t become part of the furniture - Non-executive directors need to move on to stay truly independent

Re-printed from the Sunday Times
Carly Chynoweth Published: 13 January 2013

Bryan Foss - Non-Executive DirectorSix years is plenty and nine years is definitely enough.

Non-executive directors who spend too long on any one board tend to become company insiders and lose their independent edge, says Alan Hindley, chairman of Genius Methods, a board evaluation company.

Partly this is because anyone who stays in one place for a long period can become part of the established order, but it is also connected to the way in which board issues tend to be cyclical. In other words, the longer directors stay on a board, the greater the chance they will have dealt with the same topic many times — and the greater the risk they will deal with it the same way they did before rather than with fresh eyes.

The danger is that tenure breeds over-familiarity — a tendency to act on autopilot.

“You get used to interpreting things in a certain way and you can miss the obvious, whereas someone coming from outside might not,” said Hindley, who chairs three other businesses.

Bryan Foss, a portfolio non-executive director and a visiting professor at Bristol Business School, believes that excessively long tenure raises questions about the composition of the board.

“In any changing organisation, but particularly mid-sized and growth organisations, the board structure needs to change to make sure it has the skills it needs for the next stage it will be going through,” he said.

However, it takes time for Neds to get to know a company well enough to make a real contribution, said Nick Andrews, chief executive of MPAC Group, a firm that advises on regulations and corporate compliance.

“For Neds to be effective, they have to be able to understand and really get into the grain of the organisation . . . in larger, more complex firms, it does take a while because they are not there all the time.

So if their tenure is up just as they have got into the swing of things, he added,

“that is expensive and not what the firm needs. However, when you see a Ned who has been there 10 or 12 years and who has become part of the fabric, everything ticks along — just tick the box. What’s the point?”

Boards need to find a balance between freshness and experience, said Foss.

“You can lose independence of thought with long tenure,” he said. “But it is also important for boards to have continuity. You can’t refresh all the board at once.”

You don’t have to jettison the experience of directors the moment they hit the six or nine-year mark, Hindley said.

“You could make another place for them, perhaps in an advisory role — something that lets you keep them in the circle without affecting the independence of the board.”

Tenure is only one part of the picture. Hindley argues that independence is primarily a character trait.

“It is something that you have or do not have but it is amplified by structure,” he said. “If you are very independent-minded but you are brought on to the board by the chairman, your independence is diminished in people’s perceptions and, arguably, in reality as well.”

On the other hand, Neds with no social or other links with their boards will be outsiders on paper but will still need strength of character to behave independently.

Financial self-sufficiency is helpful in this respect, said Foss, as Neds won’t be reliant on any one board position for income.

“If you have, say, four roles, losing one . . . is bearable, but if you earn significant fees from fewer roles, it puts one in an entirely different position because you are too dependent on that one role.”

Still, there is little point in thinking that independence alone makes a Ned effective, said Andrews, particularly if that Ned lacks the knowledge to ask the right questions.

“Looking for someone just so you can say that he or she is independent is not good.”

An independent streak, though, is vital if non-executives are to perform their roles properly.

"Neds", said Andrews, “should be constantly questioning whether [they] are getting the right information at board level — that it’s not just a repetition of management information and that the information is still relevant. If it’s still in the same framework as five years ago, they’re probably looking at the wrong thing.”