SMEs Urged to Take on Non-Executive Directors

Placing a non-executive director (NED) on a board can have the same impact on a business as changing the chef at a restaurant or installing a new head at a school. It can be a transformation, says Hanson Green, the UK’s leading provider of NEDs.

But consultant Peter Waine says some small to medium-sized companies may be put off professionally appointing an NED either because they have such a tight budget or that they feel they are insufficiently attractive.

“We have literally transformed companies through the quality of our independent director appointments. They can bring the business back to core activities, they can help colleagues plan well ahead for either a possible sale or exit for the founders, or even to encourage reinvestment and therefore to look at the longer term. In addition they can look at succession planning, can act as a conduit between subsidiaries and the main board and, in the case of entrepreneurs, help them to be sufficiently focused and when necessary run the firm in a less personalised way.

“But with smaller firms the fear is that they cannot afford to make a mistake. They have got no fat. It is therefore important that when they do appoint an NED they adopt many of the disciplines of the larger firms. They should run the business as if it is a public company making sure that things like the management accounts are produced on time.”

An initiative run by Hanson Green is helping smaller companies make this leap. The Annex programme is a two-way business enterprise which matches small businesses seeking NEDs to large companies looking to motivate and groom some of their high-calibre employees for the boardroom. The company the NED candidate comes from pays the Hanson Green fee and the receiving company pays the NED. The NED fee can be paid back into the lending company’s training budget.

“The company the candidate comes from gets someone who has been exposed to a different culture. The candidate may be in a different sector and he or she can feed back to his own board. The director goes to teach and comes away learning and it prepares them either for promotion to the main board or if recently appointed to become a better generalist. The receiving company gets a high quality candidate at low cost

“One of the beauties of an NED is that he or she can reflect the changing needs of a company more easily than an executive director, but they can also offer continuity if the executives come and go.” For this reason, Waine says, the length of the NED’s tenure is less important than the relevance they bring to the boardroom.

Waine believes the best development to emerge from Derek Higgs’ review of the role of NEDs is that companies will no longer be able to hide behind a façade of corporate governance. “Some companies don’t believe greatly in corporate governance and they have been able to hide, by at least having the right number of NEDs in place even if they haven’t recruited them for their independence to challenge the board. Indeed they have found it much harder to adopt a slightly insincere attitude and of course that is good news for all concerned.”

Hanson Green consultant Peter Waine on: