How to appoint the right non-executive director for your organisation?
Many businesses, including smaller ones, appoint non-executive directors, or NEDs. A non-executive director does not assume the day-to-day running of a company. His/her role is one of constructive challenge, support and oversight. A non-executive director is responsible of monitoring and scrutinizing the performance of the executive management team. Here are a few considerations and recommendations to help you recruit the right NED for your organisation.
Why do you appoint a non-executive director?
Some businesses want a non-executive to advise them on fund raising, while others need technical advice or general 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, expertise, skills and knowledge, potentially a range of valuable contacts, insights and objectivity to the executive table.
Set the expectations
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. The expectations can be set out out in the letter of appointment or the role specification or terms of reference.
Perform due diligence
Assess the fit of the NED using the questions you are being asked. A non-executive director is seen by the law as bearing the same level of responsibility as other directors. An understanding of how businesses work is essential. Answer the NEDs’ questions as honestly as possible; otherwise you risk a failed relationship. 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 role or even lack of enthusiasm for the role.
What is the appropriate level of compensation for a NED?
Most NEDs work on a part-time basis. Non-executive directors are appointed with a letter of appointment that sets the expectations, indicate the time commitment of the role, the tenure and the period of notice for termination of their engagements. NEDs are paid a fee, for their expertise and time.
The typical tenure of a NED is 3 years, but this depends on the maturity of the organisation. A high-growth business, scaling up rapidly might need different skills in 18 months because of the growth achieved. A NED that stays for too long risks becoming too cosy and unchallenging, which can produce a sense of unhealthy dependency. It is best practice to agree on an initial period of appointment with the possibility of a mutually agreeable extension. The UK Corporate Governance Code includes a provision that states that the maximum tenure of an independent NED is 9 years.
If you are an organisation looking to appoint a non-executive director, please contact [email protected]. We can support your recruitment efforts, leveraging the strength and deepth of the NEDonBoard community of influential board professionals.
Written by NEDonBoard and edited by Elise Perraud in October 2021.