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Need a NED? Here’s how to avoid the pitfalls

June 30, 2015

A good non-exec director can do wonders for an SME,NED 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:

• Intellect
• Integrity and commitment
• Inter-personal skills

Intellect

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.

Inter-personal skills

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”.bidet 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 unreagolferssonable 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: caroline@carolinegourlay.co.uk.

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.

 

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Photo credits

NED: OEA -OAS

Bidet: Kevin Yank

Golfers: Sue Cline

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