What makes a good non-executive director?
Wednesday, November 25, 2009 | Posted by: Grant Thornton
| Tags: FT,
Corporate Governance,
Michelle Edkins,
David Jackson,
BP,
Financial Times,
Barclays Global Investors,
non-executive directors,
Lesley Stephenson,
Lucy Kellaway
This was the question posed at a recent event run by the Financial Times Non-Executive Directors’ Club in association with their partners, Grant Thornton.
Three experts were asked to give their opinions, Michelle Edkins, Managing Director, Head of Corporate Governance, Europe at Barclays Global Investors gave an institutional investor perspective. David Jackson, Company Secretary of BP plc then went on to give a corporate perspective and finally Lucy Kellaway, columnist with the FT gave her own perspective as non-executive director of Admiral plc.
All of them agreed that getting the right mix of directors on the board was crucially important. “It’s just common sense,” explained Michelle. “Directors with integrity, expertise, diligence and intelligence providing truly independent oversight will naturally do a much better job. That’s why the make up of the board really matters to investors.”
It’s not just a question of having all the right individuals on the board though, it’s crucial that the board works well together well as a team, and the responsibility for that falls squarely at the feet of the Chairman. “You can have a non-executive who is perfectly competent and able, but if the dynamics of the board as a whole don’t work, then they are not going to be able to be as effective as they could be” said Michelle.
David Jackson was concerned that companies and regulators should not fall into the trap of thinking ‘one size fits all’. He feels that the precise role of the non-executive director depends very much on the circumstances of the particular company and that that is what should drive the selection and the role of the non-executives. He also pointed out that it was really important to be very clear with the non-executives as to what their role was and what they were expected to contribute.
All the speakers agreed that it was important to have a diverse range of non-executive directors, not necessarily purely in terms of gender or ethnicity, but to make sure that there was no danger of ‘group think’. If all the non-executives on a board come from a similar educational and/or business background, the chances are that they will all think the same. The role of the non-executive is to provide a different perspective and to challenge some of the received wisdoms which can evolve over time so ahving an element of diversity is really important.
Although most of the coverage of non-executives has been focussed on the financial services industry, all the speakers were clear that boards ion other sectors had no right to be complacent. Merely ticking the corporate governance boxes was not enough. Good corporate governance is more than pure compliance. Lucy Kellaway commented, “If there’s too much compliance and it’s of the wrong sort, it reduces the intellectual crackliness of the debate.”
Reader Comments (3)
You make a good point - Personally I think it is the balance of the Board that is important and I agree it is unlikely that there is a standardised or formulaic set of characteristics that makes a good non-exec. However the most useful board contributors will likely share a number of key skills or attributes, such as integrity, relevant business and/or life experience, the skill to identify the issues at hand and to think strategically, as well as good interpersonal and communication skills, the confidence to constructively challenge and ensuing that they devote sufficient time to preparing for and attending meetings. The sector experience of the individual may be relevant, although some issues that companies face cut across sectors and so an individual from a different sector who has perhaps faced a similar situation previously may be able to bring value on specific risks.
It is up to the Nominations committees to assess the skills required and to fill vacancies with NEDs who have the capacity to assist and/or challenge the board as required and by performing regular independent evaluations on board effectiveness, companies should be able to obtain a balance with the best mix of skills.
I found a useful report from Knowledge West (2005) entitled “Non-Executive Director - How to be Exceptional” that ranked the views of 124 of the UK’s Directors (with experience from 552 Boards) on what it takes to be an exceptional NED. Their results highlight the characteristics most desired in an NED as their breadth of experience, the capacity to leave their ego out of discussions and having the courage and capacity to ask difficult questions. They also make the point that “the best NEDs have all these factors, in the right mix to suit their particular profile and situation” but I’d be interested to hear what others think.
http://www.knowledgewest.org.uk/displayEntry.asp?URN=106&rp=index.asp
Added Thu Feb 2010 at 03:02:03
A quality of a good non-executive director that transcends expertise and industry experience is the drive to leave the board in a better place than where he or she found it.
That usually means having the confidence to challenge the other members to improve the way the board goes about its duties.
Small, but powerful improvements could be something as simple as asking for all materials 48 hours in advance of a meeting.
Another example might be insisting that board time be spent discussing the implications of a Powerpoint deck as opposed to having to sit through yet another presentation.
In sum, a good non-executive director brings the discipline of process to the table.
- Michael Vermillion, Co-founder, Brand Personall
Added Wed Feb 2010 at 11:02:15
This doesn’t really help much does it? What does make a good non-exec? Breath of experience or relevant experience or even completely non-relevant experience but different perspective? Is there any real forulae or in fact is it spcific to the industry? Would a manufacturing oriented person bring value o a financial service company or maybe just be confused? Sorry but this piece just did not address the titled question and left me non the wiser.
Added Thu Feb 2010 at 04:02:56