NED — The Non Executive Director: Who should it be?

NED — The Non Executive Director: Who should it be?

Independence, time and the ability to question.

Being offered a position as a non-executive director (“NED”) can be rather flattering to the ego, and in some instances considered to be an “easy ride”. You would be very wrong, at least in terms of it being easy. From the company’s perspective, you want someone with a voice and “the balls” to use that voice. Having a yes person on the board who has no real commitment to the company is a waste of money and space. In today’s changing boardroom, “business must harness the power of ethics which is assuming a new level of importance and power. “ (James Joseph — former US ambassador to SA)

For the company, the CEO or chairperson having a clear understanding of the board dynamics will help in deciding what type of NED is required. The board should have a cross section of talent, skills and viewpoints.

Things to consider when looking for a NED:

1. The first question to consider is “is the NED going to be independent?” What I mean by this is particularly in some instances where a private equity company has invested monies in the business, they can be expected to want to put someone into the business, either as part of the management team or as a NED. This is scenario is fine, but the NED and the company should always be aware of any potential conflicts of interests that could arise due to the lack of independence. The real difference is that an independent NED does not participate in management, but plays the important role of supervising management, participating in setting strategic directions and protecting the interests of all shareholders. An independent director must appreciate the difference between management and governance. Independent directors who misidentify themselves as part-time executives or claim that they could not realistically be expected to know much about the business must realise that such positions are no longer defensible. They may not have detailed knowledge of the business, but having sufficient knowledge about the company’s strategy, policy and performance, and governance processes is crucial.

2. Does the NED have capacity to take on the role? Good practice suggest that a person should not have any more than 3–5 positions, depending on other roles they are doing. You want someone who can dedicate time to the position and bring value. Simply turning up on an allocated day has little benefit.

3. Look at their background and past performance. The smaller business will be less concerned with the corporate governance aspect or any finance background the NED may have, but see the appointment more about adding credibility, business experience and commercial introductions.

So why have a NED? In a smaller business they act as a “sounding board,” particularly if there is no real board to speak of. For larger companies, NEDs have a different perceptive from executive directors; they challenge executive directors and because they don’t have skin in the game, they challenge and test decisions taken, particularly in respect of strategy. James Parsons, director of recruitment firm Arrows Group once said “Our non-exec [former Harvey Nash chief executive David Higgins] stopped an area of our European expansion which we now realise would have been a bad move.” There will of course be disagreements between the NED and the board, but it is not the responsibility of the NED …”to influence the chief executive and board” (Jennings) (The Telegraph)but rather to give the best advice possible.

So, what does a company look for in a NED? The best approach is to appoint a generalist who can manage a company’s growth. “It was important to have someone with an understanding of business which would enable them to advise us across the board on everything from talent management to legal issues.” (Parsons). There is sometimes a tendency to move to a specialism for an appointment, but a NED is much more than specialist knowledge. If detailed, specialist knowledge and skills are required, they should be brought into the company via a consultant or another form of appointment. There is also the allure of the “trophy appointment,” which can work out as long as there is an open discussion about expectations of all parties and these are carefully managed.

In order to get the best out of the relationship with the NED consider:

1. The role: Agree the role and commitment required. Outline this in their letter of appointment.

  1. Questions: Ensure they ask the right questions before entering the business such as:

a. Company’s financial position

b. What record does the company have on corporate governance issues?

c. Have they walked the factory floor first — i.e. have they really got under the skin of your business?

  1. Keep them informed: To get the best from a NED, their performance depends upon getting the right information in on time. The best way is to update them weekly and if necessary, daily. This will allow for higher level of engagement.
  2. Take a review: The company must periodically do a review of the NED and ensure it is a relationship they still want in place.

Top three things NED should remember:

1. A level of corporate governance is expected. Ensure that you carry this out.

2. You are part of the consciousness of the company. Ensure you check the broad processes and Articles before accepting an appointment

3. Check the company’s business activities in terms of risk, ethics and conflicts.

Exercise: As I walk along the path of the park during Lock-down

Photo by Rafał Rudol

As I walk along the path of the park,

Nature appears to still be at her best.

She does not miss us humans.

As I walk along the path of the park,

The basketball and tennis courts cry at the silence,

They miss us humans.

As I walk along the path of the park,

People long to gather in groups, craving a touch or a smile,

Humans miss and crave one another .

As I walk along the path of the park in the time of COVID lockdown ….

Madness and Sanity — Will the Arts survive?

Photo by Li Lin on Unsplash

Madness and Sanity — Will the Arts survive?

There is a fine balance between madness and sanity. In fact, there is a fine balance in life for most things and we are at a juncture of slipping into madness — at the very least our flirtation has started. With a broken approach to handling the pandemic and assisting businesses within the UK, and now the prospect of further forced lockdowns like the one faced by Leicester, it is becoming harder for businesses, and in particular the hospitality sector, to plan and prepare. There is a growing feeling, not just with businesses but with people in general, that we are falling into a spiral of madness, and one in which there has been very little relief from. The pandemic is still a very much live issue globally and there is a still a very high economic risk of businesses closing, particularly as companies are slowly weaned off the furlough scheme. With no money coming in and all you have is expenditure, there can only be one direction of travel and that is towards insolvency and a greater chance of economic depression. Throw into the mixing pot the issue of human behaviour and our fundamental need for socialisation, and the unrest caused by lockdown has been tolerated this far. Our need to get back to something approaching normality is palpable though. Despite 71% of people surveyed (Redfield & Wilton Strategy) believing that there will be a second wave of the virus in the England, people are wanting to venture out an enjoy a pint or two. The varied approaches between the different leaders of each country within the UK is beginning to leave a bitter taste among some in England.

One such group is the Arts. The arts work hand in hand with many restaurants and bars who offer pre theatre meals or are located close to other venues such as museums. So why has England been so slow to react, not just from a global perspective but also from a UK viewpoint too? Among all this talk about viruses and businesses and help being provided to them to ensure their survival with a firm eye on ensuring the economy bounces back, the forgotten and not talked about in England has been the arts. The arts have been completely disregarded until the funding announcement this week, and many have already had to close their doors. The arts not only employ staff but also rely on suppliers, often freelance works and outside businesses in building production sets. Their plight if they are not supported effectively throughout this pandemic and economic challenge will not cause a ripple but a disastrous tidal wave that will have a grave effect on the economy and society overall. It will be a wave that we have been warned by the industry is not coming but about to hit and smash everything in its sight. Thankfully, the government’s financial package has now arrived and will at least stall that tidal wave for now.

Before you push your noses in the air and say, “there are bigger things to worry about,” the arts industry generates almost £11 billion pounds for the UK and employs almost 2 million people. The collapse of an industry that size would no doubt help hurtle the UK to its economic depression. There is also the cultural and social effect any form of collapse would have. In contrast to England, the other countries within the UK have acted more swiftly such as Scotland announcing a £10 million relief fund for the arts venues in their country, Wales providing £7 million and Northern Ireland making £4 million available. Once again, England has done things differently and the arts have been forced to wait right up to the wire to be told what help is on offer. At the very beginning of lock-down, the arts had foreseen the issues with social distancing and informed most of their staff and freelance contractors it was unlikely that at the very least the theatres would be reopening before January. The fate of other arts venues is dependent on levels of social distancing and lockdown. Keeping them solvent has been incredibly difficult — Nuffield Southampton Theatre is already in administration with 89 redundant and the National Theatre announced 400 job losses last week, -and there may be an additional economic responsibility upon the venue, particularly if they employ a large amount of people in an area that is economically deprived. Like hospitality, in order to survive they have to achieve 85% attendance. The impact is grave. I have often talked about the eco system and here this is no different; all arts venues, production companies and hospitality are interdependent. Take a moment and think about what is included in the arts– live music, community arts, and let us not forget pantomimes. the life blood of a lot of regional theatres. Every year 75% of the population engage in the arts in one form or another — just think how often last year you visited venues like the Leeds Arena, Leeds Playhouse, Huddersfield Theatre or the Leadmill in Sheffield. This is not a minority interest. Of course, this also includes festivals like the Leeds/Reading Festival. The cost in redundancy will be high. Surely the decision to spend money now on keeping the arts alive is the right one. The UK is one of the leading lights in culture and attracts visitors from around the world. Let’s hope that with this package of support from the government, our phenomenal arts sector can avoid being a tragedy only to be talked about in years to come but instead continue to dominate on the world stage.

It’s not the bear or the outrunning the slowest runner. It’s being a Jack Russell

There is an old adage: to get away from a bear you don’t have to be the fastest runner in the world, you just have to be faster than the person behind you. Hmm… A bear can run between 30–40mph (48–64kph). Whippets are the fastest domesticated animals of their weight. They can get up to breakneck speeds of 35 mph, in part down to their unique running style, matching almost the average bear.

I tell you this because no doubt you have read numerous business blogs all attesting to the importance of keeping nimble and on your toes, and you are forging ahead. Pushing forward. Your business or organisation is better at providing their product or service. The self-belief of the organisation wrapped up in the knowledge they are “better” than the competition and are therefore outrunning the bear.

That self-belief worked for a while but take a look around. There is more than just a bear; there are also a few wolves hanging around. The pace of everyone running has slowed down so that we are almost equal. So should we cling on to the hope that if we are simply better than our competitor, we will succeed? Where does our client or customer fit into this equation? They don’t and currently with all that has happened and is happening, they don’t want better — they want different. They want to do business and have suppliers who think and react differently and still do better.

Personally, as a non-executive director or as a business owner, I want to be more like my Jack Russell. In general, small breeds don’t make the best running companions but the Jack Russell Terrier defies this rule. When I have taken my Jack Russell out for walks we inevitably will meet a whippet or greyhound and she will be chased. She will never outrun them in a straight line but what she does is not focus on just being better, or faster, but rather is smarter and uses intelligence and strategy. She scopes the land, calculates her plan and actions her escape by pivoting and turning almost doubling back on herself, leaving the greyhound or whippet running in a straight line wondering where she went.

In today’s new normal, it’s not going to be enough to outrun the slowest runner, you have to be smarter because businesses are demanding this of their supply chain.

It’s time to rethink how as a business you will present yourselves and what to believe in. Do you think you can outrun the bear, or do you want to be more like the Jack Russell — plan, execute and find new land?

The market is moving like an express train

(Why sustainability is good for business)

There are a hundred and one things facing most businesses today. Whether you are in a turnaround position or growth, I have heard some businesses say: “for the love of the world, how can you even ask me to consider sustainability issues at time like this! We are an SME we don’t have the money (or) it doesn’t really affect our business!” My response is simply it does, and in a number of ways. From an economic perspective, it can actually save companies money; from a social standpoint, more people (customers/consumers and employees) are considering whether companies are actively sustainable before they join them or buy from them; and of course there is the environmental impacts to consider. These are the key issues that most companies think about when the topic arises but there is a fourth: Opportunity and Risk. All directors of a business, no matter what size, have to give risk and opportunity consideration. What is in the best interest of the company and what are the risks of taking action or in some cases, not taking action? The economic disruption has opened many potential opportunities, and sustainability is one of them. It also means when a company considers its risk, the issue of sustainability should be reviewed. The decision process has to be very well considered and not just dismissed out of hand because there is a misconception of costs involved in the short term, when it could result in significant long term gain.

Put simply the express train has arrived and if you don’t board now, it will cost you dearly within the next 12–24 months. Don’t sleepwalk into the trap of thinking ‘let’s get our business back on track and see what we can do to survive’ but instead approach it with ‘let’s get the business on the right track to thrive.’ Allow yourself to future think.

The concerns and worries a business may have at present about changes in consumer demand and their dissolving finances are all genuine. But the time is now to future think and to consider the reasons why you should make sustainability part of your agenda in order to pivot and evolve. If you are not, I can assure you your competitors are, and your customers and the larger corporations are all heading in the same direction.

Looking back at history, it has at the time been hard for some companies to future think and move away from their trusted way of doing things, in part because of the costs. I cast my mind back to renewable energy and the move away from coal or even more recently, the move from diesel cars to electric. Yes, it can be expensive in the initial period, but that will only be for a short period of time. Slowly, the SME is beginning to embrace change and becoming more and more sustainable, in part due to pressure from the consumer, policy and the larger corporate’s that rely on the SME sector as part of their supply chain. If you sleepwalk into the next three years, you will find yourself in a position where it will cost you more money to change. By that time, it will be harder to pivot — not impossible, but harder.

Stop and consider how quickly things are moving. A prime example in this very unusual time is the way we have all embraced technology that was already there to rapidly transform our working practices to accommodate remote working on a colossal scale. Partnership is key to success. By learning to work together in collaboration almost as one organisation with multiple companies, you can share the burden. Explore and see where and with whom those opportunities live. Bring people onto your board that have diverse thinking and contacts.

It is the responsibility of the board and, if you have one, a non-executive director to ask questions and ensure that sustainability is on the agenda and not merely as an afterthought. It forms part of the risk management and identifying opportunities for the business. And us directors all know that we must act in the best interests of the company. The market is moving like an express train; blink and your opportunity might vanish and leave you with the relics of the dinosaur.

COVID-19 has accelerated disruption and the normal has been destroyed. We can imagine change and human capital plays a fundamental role. There are concerns around climate change and modern slavery that are forming at the centre of our evolved consumer world. The world is understanding this position and governments and policy bodies have understood that post-COVID-19 we have to build back better, and investment is key. The change is across all organisations — just look at the way pension funds are changing how they allocate their funds by making a conscious decision to review the sustainability policies of the companies they invest in. The voice of the consumer has always been strong; what is so different now is the pandemic has allowed us all to revisit and re-evaluate our lives and business.

Larger corporates now have sustainability targets that have a direct impact on society and their success. They are now communicating their sustainability objectives to the SME supply chain and auditing them. If you want to join the party, you need to be making inroads to being more sustainable. Is the message loud and clear — can it hear it above all the other noise? Look at Honda for instance, who switched to an EU commitment to reducing embedded carbon and have implemented a supplier system of Gold, Silver and Bronze. If you fall into the Gold or Silver band you become a preferred supplier; at a very minimum, to be part of the supply chain you need to fall within Bronze. The message is blowing like a loud speaker — adapt or we cannot do business with you.

In this disruptive time, own your own destiny. As an SME you have an advantage of agility, you can move fast. Change is possible, you just need the mindset. After all, everything starts with a thought — Rethink the Future Now.