Alan O'Neill: 'Making the case for bringing in external support'
More small firms are hiring non-executive directors. Done correctly, it can prove highly beneficial to them
When the leaders in large organisations have an issue that is outside their specific function, they can walk down the corridor and consult with a colleague. If the commercial director has a financial query, she can pop next door to the finance director.
Large organisations have lots of people internally to brainstorm and share the load. They have regular meetings to plan, monitor and problem-solve. When those meetings are well run, positive actions get agreed that are reflective of the diversity of thinking, experience levels and roles. Spare a thought for the leaders of small businesses, who have to multi-task and be multi-skilled in order to get the job done. Because of their size, their resource pool is more limited.
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External professional support that is delivered with objectivity is of great benefit to businesses of all sizes. More SMEs are bringing in external support in the form of non-executive directors (NEDs). This is a formal arrangement between an organisation and an independent, qualified person, that supports and challenges the board of directors on strategy and governance. The main advantages of having an NED include:
• Independence. The NED brings independence and is not caught up with emotional issues, such as family matters, conflict, or unhealthy allegiance to unprofitable suppliers, products or markets. The NED will support with fresh ideas and challenge assumptions as necessary.
• Expertise. Picture a business that was founded by an engineer on the basis of a great product. While respectful of the grit and natural sales ability that brought the company to a certain stage, taking it to new markets may require different thinking and skills. Finding someone with experience and expertise in opening doors in new markets may be of great value. To be clear, this is not a professional salesperson. The NED's job is to question if it is the right thing in the first place, in terms of fit with the business.
• Strategy. Because the limitations of an SME will usually require all hands on deck to get the day job done, there is often less time given to consideration of the big picture. An NED will ensure that the day-to-day operations of the business pay respect to the ultimate goal. For example, imagine if the intention of a driver is to travel from Galway to Dublin in two hours. There are lots of great attractions along that road that might cause the driver to deviate off course, causing late arrival or at a different location.
• Risk management. An NED will encourage all business risks to be identified and then mitigated. They will encourage the firm to acknowledge and consider even the less obvious risks, such as people succession for example. After good debate, those risks will be scored and weighted.
Having an NED on your board is not all plain sailing. There are some pitfalls too, many that you will have heard about over the years. For example:
• Lack of diversity and balance. If there are too many like-minded board directors or with similar experience and skill-sets, that can lead to group-think. In other words, people go with the flow of an idea, rather than offering different perspectives. Diversity of gender, age, skill-sets and experience is essential.
• Old-school-tie appointees. For quite a few years, there was a pool of NEDs in Ireland that were doing the rounds of the big companies and bumping into each other in different boardrooms. Thankfully, that is less prevalent now, but it's a watch-out.
• NEDs too involved in operations. NEDs should focus on long-term strategy, not day-to- day operations. Of course, they should have a reasonable understanding of the day-to-day, but only insofar as it impacts on strategy.
• Terms of engagement. In my personal experience as an NED, a term of somewhere between three and five years is optimum. When NEDs are around too long, they can lose their objectivity and become part of the furniture.
• Board dynamics. Apart from the obvious need for objectivity, expertise and experience, the chemistry also has to be right, where authenticity, respect and empathy have to be present.
• Lack of challenge. A 'yes-man' or 'yes- woman' does not add value to a business.
Tips for Hiring an NED
This week, I spoke with Thora Mackey, the COO of the Institute of Directors, with specific responsibility for the Boardroom Centre. This is a service where organisations can access a vast pool of talented NEDs and go through a selection process to ensure best-fit. Here, she offers her advice on how to best-select an NED:
1. Develop a comprehensive spec of your ideal candidate, in terms of skills and experience, then shortlist suitable candidates to close that gap.
2. Interview the candidates who most closely meet your requirements, asking some of these key questions...
• What relevant experience and qualities do they have for your particular business?
• What has been their past contribution at board level? What are relationships like with board members, chairs, senior executive staff and shareholders of other boards on which they sit?
• How do they support and challenge?
• How have they handled past board conflicts?
• Do they have any existing or potential conflicts of interest with your business?
• Do they have the time to commit?
3. Develop a contract which clearly sets out their role and terms, and take time to ensure they clearly understand your business and what is expected of them once they join the board.
4. Undertake a comprehensive induction, including showing management accounts.
The Last Word
Fees for an NED vary and are usually linked to the time required. Depending on your circumstances, you may decide to have board meetings every one, two or three months. Hiring an NED should, however, be a worthwhile investment that will pay dividends in the long term, provided you approach it professionally and avoid the pitfalls outlined here. It's all about the fit in the first place and then not muddying the waters over time, as an NED needs to remain forever impartial.
Alan O'Neill, author of Premium is the New Black, is managing director of Kara Change Management, specialists in strategy, culture and people development. Go to www.kara.ie
Sunday Indo Business