The Appleton Column: What does a non-executive director do, exactly?
28 January 2016
As someone who’s privileged to sit on the board of four very different companies – in three of which in a “non-executive” capacity – I get asked the foregoing question quite often when I respond to the standard drinks party question “what do you do for a living?”
I normally try and brush the “what’s a non-executive director do” question aside with a witty (in my head) one-liner like “you listen to company management telling you what they’re doing and offer them advice based on personal genius." But there really is more to it than that!
A good place to start the real answer is to think about what a non-executive director (NED) doesn’t (or at least shouldn’t do). There is very little added value (and probably some destructiveness) in NED’s making statements of the blindingly obvious.
If the NED contribution is, “I see from reading the board reports that sales are down on budget. We need to do something about that, urgently,” then they are displaying their own lack of imagination and signalling that they don’t have confidence that a managing director/CEO could work this out for him/herself. They are trying to act as puppet masters to the executive management because they haven’t really worked out what their job is.
I would also question whether the role of a NED is even to delve too deeply into the mechanics of the solution to the fictitious sales shortfall described above. At best, the role stops with confirming that the executive (a) realise there is a problem and (b) has a coherent plan for responding to it.
The executive should know the “temperature” and capacities of the organisation far better than any NED and so they are in the best position to put in place a workable plan. If conditions (a) and (b) are clearly not met then the role of the NED is to contribute to getting the right executive management in place. It is not to fix the problem for the executive.
The first area where the NED can bring real value and support is by ensuring there are good approaches in place to answering the big questions that can permanently derail a business. Do we have a clear, easily communicated strategy in place?
How well do our systems of measurement (and reports to the Board) track progress against that strategy? Are existential risks to the business (cash, suppliers, business downturn, etc) thoroughly scoped, understood and actively monitored? Are blockers to successful implementation of strategy clearly identified, and is there a realistic and trackable plan for dealing with them?
In this context it is good to have NEDs around who have been (and maybe still are) involved in the crossfire of business themselves. They can help the executive develop ways of thinking about and monitoring the business which bring a blend of covering all the main objectives, without report production becoming an industry which only serves the need of board meetings.
The most effective companies have board packs which are simply high-level aggregations of how the business runs itself on a day-to-day basis. That, in turn, comes about through having NEDs who have a good understanding of what’s important to that business and not simply a theoretical template that is almost, but not quite, fit for any business.
The other area where NEDs can add real value is in the role of coach or mentor to the executive. They have a privileged position of being close enough to the action to see where issues are, and might understand a number of the personalities involved.
If NEDs offer a safe pair of ears for the executive to talk over problems and get the benefit of another viewpoint which comes with no hidden agenda, it is a benefit to the executive and the company. The only danger is that advice starts to become direction. It is always critical that the executive remains clear on their primacy in operational decision-making.
Good NEDs are worth much more than their fee. At its best it’s like having a strategic consultant and confidant constantly on tap. At their worst they can feel more like a leaky tap – irritating, damaging
This is a column from the January/February issue of IRN. To read the full article, with extra images and information, subscribe to the magazine: http://www.khl.com/subscriptions/magazines/international-rental-news/