Non Executive Director: Who holds you accountable?

Academic research shows a real need for non executive directors (NEDs) in the SME market and a clear understanding of the potential benefits they can bring - why should your small business follow suit?

Firstly, NEDs play a vital role in bringing an alternative, experienced perspective to the business. They open up new opportunities, acting as a sounding board to the senior team and eventually becoming an integral part of the business’ structure.

Essentially, the role of a non executive director (NED) is to provide a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors.

In a time where the British labour market carries the reputation of lacking in productivity and having a shortage of skills, NEDs have the ability to fill in the gaps – particularly when looking to grow the business, tackle regulation or compete in an increasingly tough operating environment.

However, despite the positivity, the study does indicate limited knowledge about NEDs within the SME community, a lack of access to key NED networks and limited resources amongst SMEs to manage their recruitment and contribution when in role.

In an effort to resolve this problem and make a non executive more accessible, we have launched a brand new business coaching package, specifically designed to give small businesses access to all the skills, services and expert insight they need to optimise their business’ performance.

Get in touch with our team to discuss how our new package can impact your business.

The functions of a Non Executive Director

Non-executive directors are expected to focus on board matters and not stray into ‘executive direction’, thus providing an independent view of the company that is removed from the day-to-day running. NEDs, then, are appointed to the board to bring:

• independence

• impartiality

• wide experience

• special knowledge

• personal qualities

The key responsibilities of Non Executive Director

Business owners can use their NEDs to provide general counsel – and a different perspective – on matters of concern.

They can also seek their guidance on particular issues before they are raised at board meetings.

Indeed, some of the main specialist roles of a non executive director could be carried out in a board sub-committee.

The key responsibilities of NEDs can be said to include the following:

Strategic direction

As ‘an outsider’, the non executive director may have a clearer or wider view of external factors affecting the company and its business environment than the executive directors.

The normal role of the NED in strategy formation is therefore to provide a creative and informed contribution and to act as a constructive critic in looking at the objectives and plans devised by the chief executive and the executive team.

Monitoring performance

Non-executive directors take responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving the determined company strategy and objectives.

They can have a prime role in appointing, and where necessary removing, executive directors and in succession planning.

Remuneration

Non-executive directors are also responsible for determining appropriate levels of remuneration of executive directors.

In larger companies this is carried out by a remuneration committee, the objective of which is to ensure there is an independent process for setting the remuneration of executive directors.

Communication

The company and its board can benefit from outside contacts and opinions. An important function for NEDs, therefore, can be to help connect the business and board with networks of potentially useful people and organisations.

In some cases, an NED will be called upon to represent the company externally.

Risk

NEDs should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible.

Overall, making a non executive director part of your SME is a sure-fire way to introduce accountability, a wide range of expertise and guidance that will put your company on the path to success.