Non-Executive Directors – why your business needs one
Every business must have a board. If you’re a private company, this could be made up of just one director, typically the owner or founder. But if you want to scale and make the business more investable, or sell the business in the future, then you need to form a strong board with a diverse range of skills. Non-executive directors (NEDs) can bring balance to the board and add a great deal of value to any business. You may have considered hiring a non-Exec for your business before but felt it was not appropriate for your organisation. However, having a non-Executive can benefit ambitious start-ups, SMEs, and even large corporates.
Non-Executive Directors (NEDs) can play an important role within a business. They sit on the board of a company but do not form part of the Executive Team Management meaning they can provide an impartial view without the conflict of having to manage the day-to-day operations of the company.
A NED is often appointed to support and challenge the leadership team become involved in strategic policy making and, of course, act in the interest of the company’s shareholders. A Non-Exec’s contributions are always one of guidance and advice, but they can also be useful to aid decision-making, building business relationships and assist company growth. They will access useful networks and possess valuable sector knowledge and expertise.
Let’s take a closer look at the main benefits that a NED typically provides:
Recruiting a NED can help a small business gain experience, knowledge, contacts, and ideas, as well as provide constructive criticism – all of which cannot fail to be of value to a company regardless of its size. A NED can bring a plethora of additional attributes including, filling a gap in a small business owner’s experience or can add industry knowledge of a specific sector that the business is targeting.
Most NEDs have usually helped several businesses find their feet, grow, or survive tough times. And, if a NED is faced with a situation they have never dealt with before, they’ll probably know someone who has. They will have witnessed multiple systems and processes through their experience that could be incorporated into your business.
Often, NEDs have helped many young companies during their career, and have often run their own organisations. This means they have been through the ups and downs of entrepreneurship before, and they have already faced sector-specific challenges.
Many start-ups, during a growth phase or after a large funding round, appoint NEDs. Non-executive directors provide guidance, connections, and a fresh perspective. They are sometimes required by high-profile investors to introduce a form of monitoring and mentorship from a more experienced figure.
Despite not being involved in the day-to-day management tasks of their executive counterparts, they do have the same responsibilities, legal duties, and potential liabilities of any other director.
Monitoring and accountability
Running a company is tough job, not just because of the long hours, constant uncertainty, and risks, but also because dedicating so much of your time to a single project can skew your judgement of the challenges you’re facing. Quite often friends and family’s advice is not best placed and totally independent.
One of the best things you can do as an entrepreneur is to surround yourself with people who have experience outside your business. Forming a board in the first place is a step towards achieving this. But going one step further, you can try to ensure that you, your executive leadership team, and board members collectively have all the necessary skills your company needs. It’s quite common for businesses to look for non-executive directors who have expertise in a specific business area, or experience in an industry that the business is targeting. However, NEDs should have a breadth of expertise and be able to contribute across all business areas, not just one.
A NED has the objectivity to keep all of that in check, evaluating the business based on clear targets and metrics and redirecting the management team’s focus on the key challenges or goals of the company with an additional level of monitoring and controls.
A Fresh Perspective
A NED doesn’t work with a business full time and is less concerned with day-to-day issues but will instead look at the bigger picture.
What is the direction of the business? Are targets being met? Which competitors should the business watch out for and what are the plans to keep ahead of the competition? They will have the ability to advise with confidence and make unbiased decisions in the interests of the business. It can be difficult when you’re caught up in the day-to-day activities of the company to take a step back and question how the business is currently run. As an NED is distanced from these operational activities, they’re well placed to focus on high-level strategy and to identify any risks or opportunities. And in times of difficulty, they will take a calm and measured approach and bring a voice of reason to board discussions.
Network and contacts
A successful business is a connected one, and a great way of making connections is through networking. However, for a small business it can be time consuming and can often prove difficult to build a trusted network of contacts. NEDs will generally have built up an extensive network of contacts over the years. They can introduce you to people you otherwise wouldn’t have access to – new customers, business partners, suppliers, team members, or investors – which can accelerate your company’s growth.
Throughout their career, NEDs typically make meaningful connections with other businesses, potential partners, investors, and other figures that can have exceptional value for a young company.
An Objective View
NEDs can round off a board by not only providing experience and knowledge that other directors may not have, but also by being able to take a more objective view of issues affecting the business and offering a wider sense of the possibilities for growth.
Fundraising opportunities and expertise
As mentioned, NEDs may make it easier for you to find and secure investment as they’ll often have investors in their network that they can provide access to. Not only that, but potential investors will also see a strong board as a considerable asset and will generally equate a higher proportion of independent directors with a more effective board. Non-executive directors also tend to have financial acumen and experience which can instil an investor with greater confidence in their investment.
If you are interested in introducing a non-Executive Director in your business then get in contact.