How do non-executive directors add value to a small business?

It is widely accepted in business that non-executive directors can play an important role in the strategic management of a company however, like the appointment of any new member of staff, recruitment needs to be carefully considered and decisions made based on the benefit available for the business.

Non-executive directors (NEDs) undertake a dual role as both business advisors and watchdogs and through their knowledge and experience can offer the business considerable value. But should every small business consider recruiting an NED and should you have more than one?

It can be an expensive decision, especially if it’s the wrong one, so companies need to look very closely at the value a prospective NED can bring and communicate the business’ expectations of the role to those being considered for the post before committing themselves to appointment.

The distinct advantages of appointing an NED are their ability to:

  • Resolve director disputes
  • Offer support
  • Persuade busy directors to tend to cash flow issues
  • Persuade the ‘founder’ to let go
  • Support a request for a loan from a relevant bank
  • Offer assistance in dealing with large or unhappy customers
  • Adjudicating in highly sensitive situations within the business
  • Keep the business on the straight and narrow
  • Provide a network of fresh contacts to help find new business

Despite the clear benefits available in appointing NEDs, recent research suggests that 56% of entrepreneurs do not feel confident of getting good performance from an NED and 33% have encountered poor-performing NEDs.

An NED should ensure the strategies of the company are clear and properly monitored. The NED can ensure that the management team doesn’t become complacent. Research shows that privately owned companies with a non-executive director on-board have a better chance of survival in any economic downturn. Yet more than 4 years on, over half of proactive companies (60%) have yet to appoint an NED, 18% can’t find the right candidate, 12% can’t afford it and 6% haven’t considered it.

Is it important that the management team and the NED like each other? The answer is no, but they must respect each other. The fundamental role of an NED is to improve and challenge – it’s not a popularity contest. Quiet, understated confidence is often the key to a good NED.

The interview process should be informal. A NED can expect £10k for 12 meetings per year, lasting up to three years or £500 per day for companies with a turnover of up to £3m. The important point all business owners should remember is not to let them invest as NEDs need to be totally independent.

An experienced NED gives an investor confidence. Avoid the ‘trophy appointment’ – a retired executive looking for a hobby, only appoint  a NED who is still in the game  When it comes to recruitment, entering industry awards and being interviewed by the press to raise your profile can help in finding a suitable NED. Having a suitable NED on board will certainly enhance your company’s credibility.

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