What do I do about a useless non-exec?
The independent non-exec appointed by my VC has gone off the boil over the past six months. He has been ill-prepared for meetings, his advice has been poor and he has lost the respect of the management team. In short he’s adding little value to the business at a time when we need good advice. What can I do to tackle this situation? Should I go to the VC or talk to him directly? And might I expect him to be replaced?
A. Matthew Peacock of Hanover Investors writes:
This situation sounds straightforward. Non-execs are appointed so that a company can benefit from a greater breadth of experience. In the case of a VC appointee, they should monitor and enhance its investment. Although this isn’t happening you still need to proceed with caution and understand the reasons for your non-executive’s malevolence.
If he works for the VC he will be remunerated, at least partially, on the success of the investment, so something is wrong here. Don’t try and go around him, he ought to be your best ally because of his vested interest in your success. Additionally a change of appointee by the VC often comes with a change of approach from them. Without the attachment of having promoted the deal internally, a new director may feel free to take a line which isn’t consistent with past behaviour.
If the director’s actions reflect how the VC feels about its investment you must deal with the situation. The shareholders’ agreement often gives a VC significant powers if things don’t go as planned. Hence you should encourage conversation not confrontation. Ideally, you should use another non-exec or the chairman who can have an open discussion with the VC.
If the situation is intractable, you could request that the VC appoint an industry representative who might be of more sector help. VCs are increasingly using non-financial representation to try and add value to their investments. This may provide a neat exit for all. You would expect a VC to respond to a call for change, but be careful what you wish for.