NON-EXECUTIVE DIRECTORS AND SMALL FIRMS

Earlier this month, I attended a breakfast meeting at the St David’s Hotel in Cardiff for non-executive directors (NEDs) in Wales.

Organised by the accountants Grant Thornton in partnership with specialist recruiters Odgers Berndtson, the aim is to provide a forum that will be able to provide experienced and first-time non-executive directors – as well as business people interested in learning about the role – with the opportunity to share ideas, good practice and connections.

So what is the role of NEDs and how can they help businesses to grow and develop?

They are essentially individuals who devote part of their time to the affairs of the company as an independent adviser or supervisor. In doing so they provide practical and creative guidance to the companies and have helpful views on securing the best use of boardroom time to ensure that sufficient consideration is given through the year to strategic and innovative matters.

They are also concerned with the maintenance and development of a strong executive structure and will be involved, often with the management team, in the creation of a robust policy and strategy and the plans and budgets needed for their fulfilment.

Finally, they give objective advice to the board on the company’s performance and guidance on the principles of corporate legislation and, most importantly, bring outside experience relating to the financing and conduct of companies and contacts with key stakeholders such as financial sources, customers and suppliers.

They can therefore be involved in the creation of sound business policy and strategy, will independently review the firm’s management structure, and can objectively assess the company's overall performance. They can also provide outside experience of the workings of other companies and industries and give access to contacts within their network.

As a result, NEDs can bring a number of advantages to businesses.

First of all, as an outsider, the non-executive director can support strategic direction for the company as they may have a clearer or wider view of external factors affecting the company and its business environment than the executive directors. The normal role of the non-executive director in strategy formation is to provide a creative and informed contribution and to act as a constructive critic in looking at the objectives and plans devised by the chief executive and his or her executive team.

Non-executive directors should take responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving the determined company strategy and objectives.

There is also the issue of supporting communication as board's effectiveness can benefit from outside contacts and opinions. In fact, an increasingly important function for non-executive directors can be to help connect the business and board with networks of potentially useful people and organisations. In some cases, the non-executive director will be called upon to represent the company externally.
Despite these advantages, non-executive directors seem to be mainly based in larger firms, usually because such individuals are not inexpensive to employ.

For example, research has suggested that less than a fifth of companies employ a NED and it was only when the business grew to a medium-sized company that this was considered a possibility by founders. This is despite the fact that the role of a NED within a small firm is to augment the knowledge, skills, and experience of the full-time management team.

NEDs can also play a critical role in guiding the executive directors through a kind of transition between being ‘managers’ and being ‘directors’ and bringing an amount of business experience that is complementary to what already resides within the company.

And their role can be crucial in ensuring that the business develops its full potential, especially as most small firms – because of the time commitment of the owner-managers - can become narrowly focused, unaware of what is going on in the world outside their door, and display very little knowledge on other businesses, opportunities and relations with key stakeholders.

Indeed, a critical role of a NED is to provide such an ‘external dimension’ to organisational thinking. In fact, being independent of the company means that the NED doesn’t need to be at all defensive about any deficiency on the part of the company or its activities which, in turn, will often lead to a greater ability and readiness to look at fresh ideas, approaches, and contacts (either in terms of new business or enhanced credibility).

Therefore, the development of this non-executive directors network in Wales is long overdue.
Given that a key problem for many growth businesses is the lack of use of non-executive directors to provide guidance and advice to support the firm to grow to the next stage of development, one can only hope that it will not only create a greater supply of experienced businesspeople to take on this role but also create demand from our more entrepreneurial companies to access the skills, experience and networks that such individuals can bring to the business

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