Why do SME’s appoint non-executive directors?

Companies invest in non-executive directors (NEDs) to add professionalism, experience and insight in the boardroom.  They act as a sounding board, in addition to providing contacts and opening doors.  A good NED appointment should produce a positive return on investment.

In an SME, non-executive directors should stand above any partisan loyalties, constructively challenging and developing strategy.

Non-executive directors are part of the leadership team and ambassadors for the business both internally and externally.
In SMEs, they are a buffer between the business owner, the staff team, the customers, suppliers and investors.
They offer an aerial view and can see the wood for the trees.

Non-executive directors add air power and reach, helping you see the wood for the trees.

How do you ensure that you and your NED achieve your goals?

The starting point is to set out clearly your requirements and expectations and set out the scope of the appointment.  Ensure both parties know what is expected and clarify the respective roles and responsibilities.

Look for a proven track record and experience

Non-executive directors allow you to buy years of experience for say one or two days a month.  Look for a proven track record of senior management and experience running businesses.  In addition, try and find someone with an additional specialist skill in an appropriate field.  That will increase your chances of adding value to your business.

Bringing in new skills

A common reason for appointing non-executive directors is to add skills that are missing from your business.  You may need financial or legal skills, strategy development, business planning or marketing expertise.  Appointing a NED can be a cheap way to bring these skills into the business.

Specific industry or technical knowledge is useful, however, being able to “see the wood for the trees”, whilst being objective and possessing expertise in a variety of disciplines is more important.

Well connected

Experienced non-executive directors usually have a good network of contacts, therefore opening doors to benefit your business.  They can also smooth relations with your other professional advisors, funders or investors.

Strategic business plans

Every business should have a strategic business plan, which maps the organisation’s objectives and includes the exit strategy.

Many business plans consist mainly of financial forecasts, therefore ignoring the vital strategic framework which gives the numbers context.

Non-executive directors can help prepare your business plan using their objectivity and experience.  This offers a framework with which to run your business.  The best plans do not survive contact with the enemy, so it needs to be regularly updated to reflect changing conditions and unforeseen circumstances.

A NED can both help you implement it, in addition to challenging you to keep the business on track.

Mentor and therapist

Running a business can be lonely.  Every business owner could benefit from the reassurance of a confidante, with whom to talk things through.  An independent objective view can be very beneficial to a busy business owner.

One client introduced the writer to his bank manager stating, “Paul is my mentor and therapist, furthermore, he keeps me sane.”  Used constructively this can be a valuable resource.

Non-executive directors – in conclusion

Agreeing the scope and your expectations at the outset are absolutely vital.

Wide experience, personal skills and past track record are more important than specific industry skills.

A good non-executive director should pay for themselves and offer a positive ROI.  They are the corporate equivalent of an aircraft-carrier, adding air power and reach whilst projecting your company’s presence to a wider audience.

Above all you need to choose someone you trust and can work well with. Personal chemistry is vital, as industry specific knowledge can be learned but the ability to work with all your stakeholders cannot.