The Strategic Value of a Non-Executive Director

For many, appointing a Non-Executive Director (NED) to your Board is nothing new but if this is new territory for you, read on because it is one of the most cost-effective methods of creating value in the future of your business.

As a Board Member and Shareholder in an expanding international recruitment solutions business and as an Executive Search specialist, I see directly how impactful appointing a NED can be.


What is a Non Executive Director?

NonExecutive Director (Non-Exec, NED or NXD) is a member of the Board of Directors who does not form part of the Executive Management team.

Essentially the NED’s role is to creatively contribute to the Board by providing objective and constructive advice, criticism and guidance.

A NED is chosen because they have a breadth of experience, are of an appropriate calibre and have particular personal qualities. Additionally, a NED may bring specialist knowledge that will provide the Board with valuable insights, fresh perspectives and perhaps key contacts.

Of the utmost importance is the independence of a NED from the management of the company and from any of its ‘interested parties’. This means they bring a high degree of objectivity to the Board’s deliberations and play a valuable role in monitoring the performance of Executive Directors in the conduct of their roles. Consequently, a NED is expected to focus exclusively on Board related matters and not stray into the management of the company.

To summarise, a NED’s credentials are as follows:

  • Independence
  • Impartiality
  • Wide experience
  • Specialist knowledge
  • Personal qualities

Appointing the right individual as a NED is a value creating the decision, conversely, the opposite is also true! A search for a NED should be as robust as a search for an Executive Director. Boards and Chair’s should not fall into the trap of appointing from their own self-referential and perhaps self-serving network.

The right person is likely to be someone who brings extensive transferable experience, someone who has “worn the t-shirt” and has the battle wounds to prove it. Experience gained from the coalface of business and organisational life is imbued with wisdom.

A NED acts as an Advisor and someone who is not operational and therefore can take a broad, unbiased and strategic view of your business, providing insight and guidance into key decisions. This is especially valuable where the executive leadership team may lack either experience or a particular expertise or have become entrenched in the status quo.

Their independence is key, a NED is not there to run your business. A common mistake is where a NED becomes entangled in operational detail and compromises their independence and therefore their effectiveness. Ensuring the NED has the right character and experience and remains strategic, independent and objective counteracts this risk.

At a recent business event in Dublin, I met an extremely interesting Executive just retired after 40 years with a global energy company. Far from hanging up their suit, this individual wanted to become an Investor and NED. I could easily visualise their contribution in a small energy wholesale or retailer, an energy trading company or an energy tech company looking to disrupt the energy sector.

The appointment of a NED does not need to be at a very high cost. They may only be required for 1-2 days per month and may typically seek compensation in the range of €10-€20k per annum for the SME sector and potentially higher for Multinational corporations, yet the immediate and long-term value could be significant.

They are also likely to act as a Brand Ambassador, so there could be indirect benefits for your company, e.g. opening new doors and cultivating further opportunities for your business.

All that said, it is tricky to find and appoint the right person with the right skills, experience and character for your Board. Stelfox Executive Search have been identifying value creating Non-Executive and Executive Directors for many years, and I would be happy to share my experience with you.

 

Steve Bell, Stelfox Executive Search