Do non-executive directors (NEDs) make much of a difference to a company? Or are they just there for show?
A non-executive director, like Edward opposite, is a member of a board of directors who does not form part of the executive management team of the company. So, what do NEDs do then? It is a role that has been much debated in recent years. In 2003, The Higgs report, on the Role and Effectiveness of Non-Executive Directors set out their role as helping to formulate strategy, manage performance and risk, and appoint and remunerate the top people.
In 2010, the Financial Reporting Council sought to update Higgs with its Guidance On Board Effectiveness, but this doesn’t seem to say much about what non-executives should actually do, or how you know if they have done well. It’s all rather vague really. The council does say however that NEDs need to allocate enough time to carry out the role.
According to Philip Hampton, chairman of the Royal Bank of Scotland, NEDs often sit there and don’t say much: too shy to ask embarrassing questions it seems. I don’t find that surprising really. It is hard enough for many full-time managers to understand the complexities of life in a big organisation: some are too preoccupied with surviving in their perilous and envied roles. So just imagine how difficult it is for someone who just pops in for a chat once a month, or so, and has his head (it is still mostly men) full of his own problems, if he is still working, or planning his next holiday, if not.
“The silent NED in the boardroom is a dead NED and is a waste of a board seat,” says Ken Olisa, chairman of merchant bank Restoration Partners and a non-executive at multimedia news agency Thomson Reuters.
I have been a NED several times. To do the job justice and to half understand the business, particularly if management don’t want to reveal what they are wearing under their kimonos, requires a lot of time, effort and perseverance. It just isn’t possible to do that in the time that many NEDs allocate to it.
Even if you do put the time in, active input is not always appreciated. I can easily see why NEDs decide on a quiet life, even though they incompletely fulfil their governance role in the business as a consequence. Not everyone around the board-room table has the same priorities, or incentives, almost ever. It can be a battleground of egos and status, but is always mollified by the addition of a woman or two. I have found that men seem to behave more sensibly in the presence of women.
I tend to agree with Murray Steele, who delivers non-executive director programmes for the Financial Times Non-Executive Directors’ Club, who says: “The zone of uncomfortable debate is where you want to be in the boardroom, but it isn’t one where people always go readily.” In fact, it can be such a hard task that many NEDs just don’t bother.
A good NED can be worth his or her weight in gold, but there aren’t many of them around or that many boards open to criticism for that matter. Too many NEDs are just there to tick the box.