How to Recruit the Right Non-Executive Director for Your Firm?
How to Recruit the Right NED for Your Company
Many businesses, including smaller ones, employ the services of non-executive directors, or NEDs. A non-executive director does not assume the day-to-day running of a company but rather provides businesses with guidance and helps them make longer-term specific or strategic project-based decisions. Additionally, a non-executive director is usually charged with the responsibility of monitoring and scrutinizing performance of the executive management.Here are a few tips to help you recruit the right NED for your company:
Decide Exactly What Objectives You Would Like the Non-Exec to Accomplish
Some businesses want a non-exec to advise them where to find new money while others need technical advice or business skills. Ideally, a non-executive director should complement rather than simply duplicate the knowledge and skills of the executive directors. Non-executive directors should bring their business acumen, experience, a wide range of valuable contacts, insights and objectivity to the executive table. It’s significant to hire somebody you trust and respect. This might be somebody you already know, but can also be someone you have never worked with before.
Clearly Let the NED Understand What Is Expected Of Them
Outline everything you expect the non-executive director to accomplish upfront. If you need the NED to make accompanied visits to suppliers, customers or business partners, tell them. If there are any black holes in your accounts, any pending legislation or acquisitions, let them have a clear picture of what is happening behind the scenes. The right candidate should be open to all your requirements.
Perform Due Diligence
It’s usually easy to tell how professional a potential NED is by the questions they ask you. A non-executive director is seen by the law as bearing the same level of responsibility as other directors and should therefore demonstrate a deep understanding of how your business works. Try to answer the NED’s questions as honestly as possible; otherwise you risk a failed relationship. On the other hand, if the non-exec fails to ask any relevant questions, take that as a red flag to indicate a general lack of understanding of their job or even lack of enthusiasm for the job.
What Is The Appropriate Level Of Compensation For A NED?
Most NEDs work on a part-time basis. Non-executive directors are usually given contracts that clearly define the number of hours they are required to work, their responsibilities and the period of notice for termination of their engagements. NEDs are paid a fee, for their expertise and time. In general, it’s strongly recommended that the level of remuneration for a NED as a proportion of their total income should not be too high since this can easily imperil their impartiality and independence.
Even though in many cases it would be wasteful to engage a NED for just one year, on the other hand it’s also recommended not to keep a NED forever. A NED-relationship that stays for too long risks becoming too cosy and unchallenging, which can produce a sense of unhealthy dependency. It’s usually a good idea to agree on an initial period of appointment, 3 or 5 years, with the possibility of a mutually agreeable extension.
As a NED, you need to understand that the company did not hire you to become second boss but rather for your independent counsel, strategic objectivity or even moral counsel with no vested interest. Always remember that NEDs are hired for what they know, but many end up getting fired for how they behave.