As many as 6,000 Non-Executive Directors sit in the boardrooms of the UK’s top 1,000 firms*.
And just a quick scan of the governance pages of the top transport and infrastructure companies shows just how prevalent Non-Executive Directors are to our industries. In our experience, large businesses in the market have between 4 and 6 Non-Executives on the board.
But what do Non-Execs do?
Although there is no legal difference between an Executive and a Non-Executive Director, Sir Adrian Cadbury stated in the 1992 Cadbury report that, “Non-Executive Directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct.”
In the last year, we have seen several strategic NED appointments to transport and infrastructure boards. Mel Ewel, former Chief Executive of Amey, was appointed as a Non-Executive Director of HS2 last September, at the same time that it was announced that Simon Kirby was to step down as Chief Executive. The timing of the announcement was used to reassure stakeholders that the board had a strong governance team at a time of uncertainty.
Horizon Nuclear Power appointed experienced industry experts William Doig and Dr Ken Petrunik as Non-Executive Directors to strengthen the Board’s nuclear credentials.
And Balfour Beatty appointed former CH2M Chief Financial Officer Michael Lucki to its board to utilise his knowledge of the US construction industry, which accounted for nearly 50% of Balfour Beatty’s revenue in 2016.
It’s a topic that we are often approached about; not only by clients looking to bring on board new Non-Exec’s, but also from current and former Executive Director’s looking to add another string to their bow.
So what do you need to know about Non-Executive Directorships?
1. Types of Non-Executive Directors
There are five main types of NED that are typically represented on the board. Companies tend to have a combination of some of the below, not necessarily one of each.
- Non-Executive Chair – are independent and cannot hold a managerial position within the company.
- Senior Non-Executive Director – This role is almost as a “Deputy Chairman”, they will support the Chairman and lead the Non-Executive Directors if the Chairman is unable to. They will also ensure there is a clear division of responsibility between the Chairman and Chief Executive.
- Non-Executive Director – Independent from day-to-day operations and valued for their objective insight. Will sit on the companies governance committees (i.e. audit & risk, remuneration, nomination or safety) to provide independent strategic guidance.
- Non-Executive Advisor – Whereas all of the above roles have the same legal responsibilities and commitments as an Executive Director, an Advisor is brought in purely to provide advice in their particular area of expertise. For example; Peter Hansford was recently appointed to Murphy Group to provide strategic advice alongside members of Murphy’s senior leadership team on their newly created “Engineering Tomorrow” forum.
- Chairperson for a review – Often appointed for 6-9 months to review something that is failing or politically sensitive, and report on strategic actions. They will often be a big name in the industry with a large network and a lot of clout to provide credibility to the outcome of the review.
Examples include; Nicola Shaw commissioned by the Department for Transport to advise on the long term future and financing of Network Rail, Sir Howard Davies’ “Davies Commission” in 2015 which made recommendations for expanding aviation capacity and Mark Farmer’s independent review of the UK’s construction labour model in 2016.
2. When is it the right time to become a Non-Executive Director and how do you find them?
An NED needs to be fully independent from the company and can therefore have no conflicts of interests.
If the candidate is still working full time then they can’t be working for one of your competitors, clients, suppliers or anything else that could link them to the business. Alan Cummings, Head of Capital Projects and Engineering at Viridor was recently appointed as a Non-Executive Director at Highways England. Although he is still employed at Viridor, the waste disposal company doesn’t overlap with the interests of Highways England, but his expertise and knowledge is still highly relevant to them.
Because of this conflict issue, searching for potential candidates can be tricky as you have to think outside of the box. Candidates that are still in executive roles are more than likely off-limits.
You often find that most people will look to take on a NED position towards the end of their careers as they reach retirement. Executives that are just stepping down from their positions are a prime target because they will have the capacity to take on the additional responsibilities and will still have significant knowledge and experience of the industry to impart on to your company.
The most common background of a Non-Executive Director is a former or current CEO or CFO. While not totally unheard of (as shown by Highways England) other functional backgrounds such as engineering or commercial are less in demand as NED’s.
3. How much time does it take?
We usually see that NED’s commit anywhere from 12 – 36 days to a company, but the average is 24 days a year. Because of this, it is common to hold several Non-Exec positions at once.
Although NED’s will only work a handful of days a year, they don’t come cheaply. The average remuneration for a NED in the FTSE 100 companies is £65,000 and a Senior Non-Exec is approximately £85,000*. So it is important to weigh up the experience that they can offer the company and how they will balance out the rest of the Non-Executive Committee. NED’s remuneration at SME companies is typically £24,000 to £40,000.
If you are looking to appoint a Non-Executive Director to your board, or thinking of becoming one yourself, it can be useful to use a search firm with a network outside of your immediate industry to make connections and match experience and knowledge to the requirements of the company. Click HERE to see how we can help.