Non-executive directors: What they do and cost
A different perspective and new contacts, but at a price
What qualities should they have?
If the company is an especially young one, the non exec is often expected to provide a few grey hairs to the board. Not necessarily age wise, but in terms of business experience.
He or she should have a proven business background and sound financial judgement. It isn’t necessary for them to have experience of that particular industry as this will be provided by the executives. What they should have is an ability to translate their knowledge of other sectors or industries for the benefit of the new company.
For a start-up company, non execs will often be entrepreneurs themselves – simply because this stage of a business is of more interest to them and more within their direct field of experience. There will be less of a fixed routine in a new company and these are the kinds of people who will respond well to this.
But the most important quality is commitment. It isn’t a cushy option to earn some extra cash. Attending all the board meetings will certainly mean a day’s attendance every month. And there will be extra days. For example, if a non exec is paid for 12 days, with phone calls and visits he or she may actually work three or four days on top of that.
How can they help your business?
A non-executive director is essentially an outside influence because they are removed from the day to day matters. If conflicts arise between members of the board they can add a more objective voice
When your company starts to get larger, flotation can come onto the agenda as a way to expand. This can be a good time to consider a non executive. They can help smooth nerves, recognise pitfalls and generally act as a mediator while in rest of the board concentrates on running the business
A non exec can bring in influential contacts they have gathered on the way to the top. These are people who you wouldn’t normally have access to as they are outside the boundaries of your industry and current abilities. They can also help in approaching the banks
If you should encounter problems – and most companies do – a non exec will be useful in minimising any damage incurred. In the case of a sudden financial crisis or market collapse, the non exec can step back and bring a level-headed approach while the rest of you may be tearing your hair out. It is likely they will have been there before.
What do they get out of it?
The average fee has increased over the last six years in accordance with the importance attached to the role.
A 2006 survey from the Institute of Directors (IOD) found that the average pay per day for non execs was £1,020; for medium companies it was £867 and for those working in larger companies it is £2,080. It also found that on average 24% of non-executive directors work unpaid.
It’s effectively a part time job with a contract so the non executive gets paid for what they do. Remember this won’t be the main source of income for them. Non execs who only sit on a couple of boards will probably have a full time job as well. And those who don’t may be non execs for six or seven different companies.