Last week our monthly movers and shakers went out and in it were seven Non-Executive appointments.
Three Non-Exec’s were appointed at HS2, Dipesh Shah joined Highways England, and SSE, Affinity Water and Berkley Homes appointed new Chair’s.
And that’s just within the last month!
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. Large plc and public sector businesses usually have between 4 and 6 Non-Executives on the board, large privately owned companies typically have 2-3 NED’s.
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.”
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 Chair”, they will support the Chairperson and lead the Non-Executive Directors if the Chairperson is unable to. They will also ensure there is a clear division of responsibility between the Chair and Chief Executive.
- Non-Executive Director – Independent from day-to-day operations and valued for their objective insight. Will sit on the company’s 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.
- 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; Keith Williams employed by DfT to review the structure of the whole rail industry and the way passenger rail services are delivered. 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.
They can’t be currently working for one of your competitors, clients, suppliers or anything else that could link them to the business. Although they often will have worked for one of the above previously in their career.
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 in the direct industry are more than likely off-limits, so identifying suitable individuals from allied industries who have faced similar challenges is often required.
Most non-executives will look to take on their first 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.
An alternative profile for an NED is a current executive director who wishes to build their board experience, potentially those with aspirations to become a CEO or Chair in the future. In this scenario the executive will need to get the agreement from their current company to do this. It will take them out of their employer for 1-2 days a month but can have significant development benefits. This can be a useful way for major businesses to give their future leaders board experience, particularly those from diverse backgrounds who may find it difficult to gain that experience for the first time within their own organisation.
The most common background of a Non-Executive Director is a former or current CEO or CFO. While not totally unheard other functional backgrounds such as engineering or commercial are less in demand as NED’s.
Former senior Partners of Big-4 firms or top tier strategy firms, are also much in demand as NEDs.
3. How much time does it take?
We usually see that NED’s commit anywhere from 12 – 36 days a year 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, sometimes up to 6.
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. Get in touch to see how we can help.