In 2011 Government-led reviews set out standards of good practice for UK companies and one of the main conditions was regarding board balance and independence. They stated that the board should include the right balance of both executive and Non-Executive Directors so that boards aren’t dominated by any particular group of individuals.
In the clauses of the code, it was stated that at least half of the board of an AIM company, excluding the Chairman, should comprise of non-executive directors determined by the board to be independent and smaller companies should have at least two independent Non-Executive Directors while AIM Companies should have at least two Non-Executive Directors.
So, why should you appoint a non-executive director and what is their value?
Why appoint a Non-Executive Director?
The main reason that your board should have Non-Executive Directors (NED) is to provide entrepreneurial leadership of the company. They are the person/persons that should be responsible for setting the company’s strategic aims, values and standards whilst ensuring that its obligations to its shareholders and others are understood and met. A good NED will ensure that the company is run well and at the same time promoting corporate governance, strengthening the management within the company.
What are the benefits of hiring a Non-Executive Director?
Recruiting a NED can offer a lot of benefits to AIM companies due to the experience, contacts and ideas that they usually come with. This along with the wealth of knowledge and constructive criticism they provide can only ever be of value to a company regardless of its size.
Here’s what a Non-Executive Director can bring to your business:
- provide outside objectivity
- implement strategic direction
- contribute to the creation of the business plan, policy and strategy
- review plans and budgets which will implement policy and strategy
- be a confidential sounding board for the MD/CEO and keep their focus
- experience to objectively assess the company’s overall performance
- experience and confidence to stand firm when he or she believes the Executive Directors are acting in an appropriate manner
- monitoring the performance of executive management
- take control of risk management including implementing a solid risk management plan
- ensure good Corporate Governance
- provide outside experience of the workings of other companies and industries
- bring sector contacts & experience gained in previous businesses
- the ability to clearly communicate with fellow directors
- the ability to gain the respect of the other directors, and it helps if he or she is liked, but is not essential
- possess the tact and skill to work with the executive directors, providing support and encouragement where difficult decisions are being made
- provide contacts with third parties such as financial sources, grant availability, potential clients, etc. and
- provide comfort to a company’s suppliers, bankers and funders
The role of NED can be demanding and requires someone who is committed and is genuinely devoted to the company and its success.
They will need to take a lot of time to understand the company market, competitors, and keep up to date with all the internal and external factors of the company in order to keep on top of the brief.
You may feel the need to start looking to hire a non-executive director as they can bring fresh opinion and less emotionally involved perspective to business decisions, which helps the company to determine threats and opportunities to the business that they may not have thought about previously. Non-executive directors don’t come in to tell you how to run your business but help you find the elements and fine margins that can have a successful impact on your business