Appointing Non-Executive Directors

It’s well known that most large corporates and private equity backed companies use non-executive directors (NEDs) and third party business advisors, and senior business people understand the benefits of having external, independent advice.

These days an increasing number of smaller businesses are realising the benefits that part-time senior, experienced and independent advisors can bring to their businesses. But what are these benefits?

Smaller businesses and start-ups are cottoning on to the fact that having NEDs can be a valuable asset, providing a source of impartial business advice, experience and contacts… The NED is there to make sure that the company is operating to its full potential and that its interests are protected. There are manifold benefits to having an NED.

Sage, the leading accounts software providers, recently said this on NED’s, and I’m not sure we could put it more clearly:

Recruiting a non-executive director (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.

Many people will have heard of NEDs but few fully understand what they are, much less what they can potentially do for a small or growing business.

What a non-executive director can bring to your business:

1. They have experience

A NED can fill 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 a number of businesses find their feet, grow or survive tough times. And, if a NED is faced with a situation they’ve never dealt with before, they’ll probably know someone who has.

2. A fresh perspective

A NED doesn’t work with a business full time and won’t be 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? What environmental changes might affect the business? 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.

3. Connections that count

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.

A NED, in many cases, can offer an address book of relevant contacts that aligns with their own experience. This could be suppliers, distributors or potential customers to help boost business or a marketing guru or potential partner to add a new dimension to your company.

4. Keeps the management team in check

Many company boards become the victims of bad habits; missed agenda items, conversations being side tracked, and opinions being discounted.

The introduction of a NED will help to keep things on track, and help to alleviate any tensions.

5. 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.

If, for example, your company grows and you consider flotation as a way to expand, they can act as a mediator voicing the pros and cons of such a move. Or, if there’s a financial crisis within the company or your market, they can alleviate stress and bring a voice of reason to the table.

Business owners, especially those looking to grow their company and increase profitability and value, should look upon a NED (or external advisor) as an additional resource – a resource who is on the side of the business owners but who can take a dispassionate view. There is no point appointing a NED unless you are open-minded and willing to listen to and act on constructive criticism.

A good NED works long term with your business, will be a bit of an all-rounder; someone who’s ‘been there’ and understands the stresses of running a business, but who also understands the potential pitfalls and how best to avoid them. They will probably be well connected and able to make useful introductions.

Non-Executive Board Members provide a valuable external perspective and ensure that executive members of the Management Board are supported and constructively challenged in their role.

If you’re a business owner or director and plan to grow your company, increase its long term value and ensure its stability, then appointing an experienced NED could be a smart move. The cost of using an experienced NED should be greatly outweighed by the benefits they bring.

There is evidence that businesses that access and exploit non-executive directors as an intellectual resource perform better in the long run than businesses that do not. Increasingly small and medium sized businesses are realizing the possibilities.

Nick Richards & John Panczak work together as LAUDIS Business Advisors. Unlike typical NEDs who usually work alone, their clients have access to both of them; this doesn’t affect the cost but provides clients with a broader range of experience and skills. If you’d like to find out more or arrange an informal chat with LAUDIS you can contact them through us or directly, with absolutely no commitment.

• Nick Richards nickrichards@laudis.co.uk 07774 189008
• John Panczak johnpanczak@laudis.co.uk 07775 626366
• LAUDIS website http://www.laudis.co.uk