Why the non-executive director model is broken (and how to fix it)
Why the non-executive director model is broken (and how to fix it)
Sometimes a practice is so commonplace in business it becomes hard to objectively weigh up its true value.
One such tactic is the appointing of non-executive directors (NEDs) to a company board to inject fresh insight and expertise into an organisation’s decision-making process or to challenge conventional thinking.
It’s a practice almost universally accepted and utilised in the business world and when NEDs and companies are in true sync – it can certainly be beneficial.
But in many ways the NED model is broken. Too many companies are bringing outside expertise into the boardroom but failing to align their company goals with the people they invite in. Often, the NED tactic is utilised because it’s the ‘thing to do’, without any objective consideration of whether it’s the right thing to do.
It’s about value
A NED must constantly add value. It’s no different to the products you make or the services you offer. There has to be value in what you are doing or you need to trim the fat.
A common flaw in the model is appointing and retaining a ‘safe pair’ of experienced hands - perhaps someone who has succeeded previously in the sector your organisation sits in. They can say the right thing and give some smart insight, but are these things actionable? Are they able to help you get things done, rather than just theorise?
NEDs aren’t accountable the way other board members are, and it can be easy for them to look the part but not actually walk it. If your NED is simply steadying the ship, it’s not enough. They must be leading the ship through fresh waters.
It’s easy to speak wise words about things that have already happened in your company. NEDs should primarily project forward, not look back. They must advise on what needs doing to reach company goals. If your NEDs aren’t moving the needle, they need to go.
Value must last
Relationships in business are like those in life. What starts with a sparkle may not last. It’s possible someone can really be a fantastic NED for a period of time, but not add the same value later on. Perhaps their skill set was suited to a certain phase of your growth and now you need something else. There’s nothing wrong with that.
Build a ‘get out’ clause in from the start or risk getting tied up in knots down the road.
Getting off on the right foot
If an NED relationship is failing to bear fruit, the roots of the problem can usually be traced back to the recruiting process. At a minimum, the selection and interview process for an NED should be as thorough as when hiring a senior executive.
When appointing an NED take your time and meet lots of people. Don’t immediately be seduced by someone’s CV or impressive black book of contacts. Try to forge a relationship before formally bringing them on board. Talk strategy, get to know why they want to be an NED and understand fully what they offer. Make sure you have a meeting of interests or aligned goals. You wouldn’t get married after one lunch meeting, so don’t jump into business bed after one either.
Remember, you will struggle to pick the right NED if you don’t have a business plan. If you don’t know where you want to be, how can you pick someone to help you get there?
Motivation is everything
Another flaw in the NED model is masked motivation. Being a NED can be quite lucrative, with significant financial rewards for a relatively limited time investment with little accountability.
There’s a thriving network around NEDs and it’s not uncommon for some people to make a very healthy living as an NED for a range of companies. While that doesn’t automatically disqualify them as candidates, it’s something you should be aware of.
Are they fully committed to each project?
Can you find out the measurable impact they’ve had in each company?
Do they do what they say they will do?
One way to test the commitment is to see if they will work a trial period without pay. A good NED, who will be committed to your business, will usually be willing to work pro bono to kick things off. That allows both sides to evaluate if the partnership is right for all.
Ride the carousel
For me, the main flaw with the NED model is it’s very difficult to have one individual meet all your NED needs in perpetuity.
A far more attractive model can be to work with a team of talent, instead of one person, and ‘carousel’ the right expertise through the business. At ValueMaker our model is based around partnering with organisations by offering them constant access to all of our expertise. Meaning those we work with get heavy face-time and expert insight from our whole team – all of whom have specialist skills and specific experience. This provides a much deeper well to draw upon and one that continually adds value.
Pick the solution that works for you
The NED model can work if you make sure you approach it strategically, align your candidate to your business plan and are vigilant about measuring the value it provides you and when you are certain your chosen candidate has your best interests at heart.
But it’s worth considering other options, especially bringing in a team of advisors, rather than one individual. Allowing you to draw on an extensive range of both expertise and experience.
Whatever model you choose, the relationship must always be about getting your company where you want to go.
It isn’t about making the ‘trains run on time’.
It’s about having someone take those trains and help them reach new destinations.
By Ian Beswetherick