A key role for non-executive directors (NEDs) is to bring critical thinking to bear on the activities of the board, however uncomfortable that may be. We outline seven positive ways to challenge the status quo
Four years ago, the Walker Review identified that a contributory factor to the banking crisis was a lack of banking expertise on the boards of banks. At the time, research conducted for the review by Grant Thornton found that only 23% of banking non-executive directors (NEDs) had relevant sector expertise, compared to an equally low FTSE 350 average of 30%.
Fast-forward to 2014: in February, the former director-general of the BBC, Mark Thompson, admitted that the failure of a £100 million IT project was due to a lack of technical expertise on the board. Directors had neither the technical knowledge to oversee the project effectively nor access to technical advice.
The role of the non-executive is to challenge and exercise independent judgment, particularly in matters of strategy, performance and resources. As the Financial Reporting Council states in its guidance on board effectiveness: “An effective board should not necessarily be a comfortable place. Challenge […] is an essential feature.” Teamwork is important but this should incorporate robust, focused debate. This is valuable for any size of organisation, from start-up to FTSE 100.
Be honest: does your chair create the right environment, one which welcomes challenge and debate? Or does the board simply meet to rubber stamp decisions?
Effective challenge from non-executive directors helps the company to explore options, identify opportunities to do things differently, and identify and manage risk. As a NED then, what should you be doing to support the development and growth of your company?
One of the duties of the non-executive director is to prevent ‘groupthink’. Does the board have sufficient breadth of backgrounds and personalities to challenge the executive and the status quo?
2 Training and development
Non-executive directors are prized for the wider skills and experience that they bring to the board. But do you have an adequate understanding of the sector and current market conditions? The company secretary or executive team should support in staying abreast of relevant matters.
3 Technical expertise
Does the board have access to the right technical advice? Particularly important at the strategic planning stage, an understanding of how things could be done differently is essential to innovation and growth.
4 Market insight
If the company intends to grow by expanding into new markets or geographical locations, does the board really understand these new operating environments? Consider appointing an additional member or replacing an outgoing director with one with relevant experience and expertise.
As the company grows, do you still have the right balance between executives and non-executives? Often as the executive team’s responsibilities become more complex, the support required from the non-executive directors increases.
6 Succession planning
Are you confident that the board is prepared for the future? Boards should regularly review their effectiveness so that they can plan for retirements and anticipate the skills required to react to future challenges.
Are there are opportunities for you as a NED to mentor senior management or new executive directors in order to deepen the company’s skills base?