{ COMPANY STRUCTURE }
IS IT TIME YOU GAVE A NED THE NOD?
By Nik Askaroff, CEO, EMC Corporate Finance
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NTIL relatively recent times, NonExecutive Directors (henceforth NEDs) were seen as the almost exclusive domain of PLCs and the very biggest private companies. Not any longer. Increasingly, private companies of varying sizes are recognizing the virtues of having a voice in the boardroom independent of the executive management team. NEDs are generally appointed to offer a “creative contribution” to the Board of Directors by giving objective criticism and advice. Although it is accepted that they can’t give the same continuous attention to the business of the company as the Executive Directors, they are expected to show the same commitment to its success. Their independence from the management of the company is essential to their effectiveness. This allows them to bring a degree of objectivity to the Board’s deliberations and play a valuable role in monitoring management decisions. As the 1992 Cadbury Report stated, “they should bring an independent judgment to bear on
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issues of strategy, performance and resources, including key appointments and standards of conduct.” NEDs are generally chosen for their calibre, their breadth of experience and their personal qualities. They may also possess specialist knowledge of use to the Board or have key contacts in related industries or financial institutions. Whilst being careful not to stray into executive directions, NEDs should always be available to provide general guidance and to offer a different perspective on matters of concern. Their principal responsibilities lie in the following areas: • Strategy: NEDs should constructively challenge and contribute to the development of strategy. • Monitoring: NEDs should scrutinise the performance of management in meeting agreed goals and objectives. They should continually act as a sounding board for management, but also probe and ask
questions where they have doubts or concerns. • Audit: NEDs should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible. There are all sorts of reasons for appointing NEDs. You may be lacking certain skills in the boardroom, need a sounding board, or require someone with experience of markets you want to expand into. Whatever the initial motivation, you will want to make sure that you get the best out of the appointment. So what considerations and actions are required to ensure that both you and your NED achieve your goals? Define your needs Clearly defined terms of reference are vital. Lay out your expectations up front so that both you and your appointee are clear on your respective roles and responsibilities. Failure to do so will leave you disappointed and potentially out of pocket. A good NED will always ask you to clearly