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How to hire non-executive directors

I sit on a number of digital media company boards and I increasingly ask myself how non-executive directors can best contribute. Three golden rules spring to mind.

Having recently joined the board of another promising web business, David Soskin sets three golden rules for successful NEDs.

Just imagine technology that enables you to fill a virtual grocery trolley at Tesco. As you fill it, item by item, you know precisely the total cost and – in real time – what the precise comparable cost of the trolley is at Sainsburys, ASDA and Ocado. Is that clever, or what?

This is not a dream but a reality, as I discovered a little while back when I was approached by mySupermarket.co.uk to join its board. Just like Cheapflights, mySupermarket is growing like a weed because it is one of those rare internet companies with a unique product which is actually very useful for millions of consumers.

I have yet to find anyone who does not want to save money on their grocery bills (just as it is becoming rarer and rarer to find people being disparaging about cheap flights) and I am delighted to be on the board of this dynamic and innovative enterprise.

I now sit on a number of digital media company boards and I increasingly ask myself how non-executive directors (NEDs) can best contribute. Three golden rules spring to mind. Firstly, the role of  the NED is primarily to protect shareholders’ interests; help set strategy; and monitor executive performance in achieving that strategy. But in small companies, they need to contribute something else too. This could be industry expertise, useful connections or prior experience of growing early-stage businesses.

They also need to make this contribution in a way which is sympathetic to the culture and resources of small businesses. Many executives who have only worked in large companies and organisations fall at this first hurdle. For example, one board I used to sit on appointed a non-executive from a large, blue-chip management consultancy.

While very successful in his own field, he simply could not adjust. He wanted rafts of detailed analysis before any decisions could be made. For a small, dynamic, growing business this is worse than impractical. It is suffocating. Secondly, NEDs must not micro-manage. There is nothing more irritating for executives than daily interference with the running of their companies.

In the early days of one business (“SmallCo”) in which I was involved, we had one NED who was a qualified accountant and had spent a few years as a junior auditor. He barraged the hard-working FD on a daily basis with what he thought were helpful tips on prudent financial management. Actually, all this did was to bog down the FD in a sea of emails, each demanding complex financial data which were of little use and a significant distraction from his day job. There was a huge sigh of relief all round in the company when the said non-executive stepped down.

Contrast this with the current NED: this individual is the FD of a successful FTSE 100 company (“BigCo”) but he understands about not micro-managing. As SmallCo, a once small business, grows across three continents, so its FD now has someone with immense experience of complex financial management on a global scale, as and when he asks for it. This is a hugely valuable and highly welcome resource.

Thirdly, NEDs should not be clones or cronies of the CEO. They should be genuinely independent and offer complementary skills. Crucially, take the interview process for the board very seriously. Getting rid of the wrong NED can be a painful and time-consuming affair, so it is really worth getting the appointment right first time.                                            

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