What separates excellent NEDs from good NEDs?

Having interviewed FTSE 100 Chairman, Alastair Lyons, CBE, following a NEDonBoard panel evening, there are some clear skills and considerations which best enable a NED to connect with fellow board members and carry out their role and responsibilities.

What separates excellent NEDs from good NEDs?

A: I think the excellent NED is one who really engages in the business, who takes the time to understand the way the business is managed, really understands the operations of the business and understands what the key performance indicators of the business are. [This enables them] to determine whether or not the business is tracking in line with what its objectives are.

The NED should have the strength of personality and character to be willing to be robust and to challenge if they feel that something is going off track – but to challenge in a constructive way so that the debate in the boardroom is moved forwards. (Rather than in a destructive way, which then stops the conversation, puts the executives’ backs up, and that – although the challenge may be perfectly valid – actually doesn’t achieve any purpose.)

Where can boards go wrong, and what would you expect of a top NED to avoid this?

A: I think the circumstances where boards can go wrong [include] where, firstly, there isn’t  that   understanding within  the  board  as  a  whole, within  the  non-executives, of what are the things that determine whether or not the business is on track.

They don’t, therefore, get the information in the boardroom which allows them to form a view as to   whether or not the executives are indeed performing.

Now, the way in which they will determine whether or not they’re getting that information is through really understanding the business, and working out in their own minds what the key performance indicators for that business are – [i.e.] what they would expect, firstly, the executives to be tracking on a regular basis, and [these] then also being presented to the board in a transparent way such that the board is being told where the issues are, rather than being expected to devil through 300 pages of detail to find out where the issues are.

Ultimately, it’s about transparency. It’s about openness; it’s about an executive working with a non-executive to achieve a common purpose. And if a non-executive feels that actually the executives are not open, that what is being presented to them is stage managed, then there’s a problem.

A non-executive, either as a director or, one would hope, as a group of non-executive directors, would then be seeking with the chairman to change the culture of that business.

NEDs – do you consider the way you challenge the board?  Could it be done in a way which best conveys both the issue and moves forward the discussion?  It’s an important skill and not one to be overlooked.  Alastair’s words echo those of fellow experienced chairman, Patrick Dunne, consolidating these views here.

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