Expectations of boards are increasing. It’s no longer sufficient to protect financial wealth and maximise profit growth, changing consumer preferences, employee attitudes and emerging regulation has increased the scrutiny that both boards and businesses face.
Non-executive directors (NEDs) are not immune to this increased attention. While NEDs operate independently (their work can be described as eyes on but hands off), they are still a full member of the company’s board, which holds collective responsibility for the success of the company. This means NEDs have the same duties, responsibilities and potential liabilities as the registered executive directors of a company.
In times of crisis NEDs are increasingly being expected to take on what seems like executive levels of responsibility, often under intense media scrutiny. As such, the role of NED has come in for some tough criticism as shareholders have been increasingly vocal in their outrage at perceived boardroom failures.
A case like the Post Office Horizon IT scandal is clearly complex and involves many different players but successive Post Office boards failed to act, which raises questions about their governance.
More recently, BBC chair Richard Sharp resigned after breaking rules over dealings with Boris Johnson ahead of his appointment. Meanwhile, Federal Deposit Insurance Corporation (FDIC) chair Martin Gruenberg announced his resignation following the release of an independent report into the US agency’s toxic workplace culture.
NEDs now find themselves facing more demands than ever before. As the reach of non-executives has widened, so has their remit and responsibilities. But these extra demands and levels of accountability are not reflected in the level of support NEDs receive. It’s time to professionalise the role.
Lacking support
Good boards should thrive on transparency, accountability and integrity and an effective NED must have the ability to understand, recognise and nurture these core qualities of corporate governance.
Nurturing NED talent is key to building an effective board
It is vital that NEDs develop a strong understanding of good corporate governance. They should be able to ensure compliance with relevant regulatory frameworks and codes; be aware of how to address potential risks that could otherwise have serious consequences for your company; and understand how to build a culture of ethical leadership and trust. This is in addition to the strategic direction they bring to organisations.
There are a number of courses and certifications that exist to upskill and polish governance expertise. Yet, from the thousands of board vacancies WB Directors advertises in all sectors, we are yet to see any governance qualification listed as a recruitment requirement.
Director overboard
The importance of non-executive directors (NEDs) in UK companies has grown significantly. Although traditionally appointed by publicly listed companies, NEDs are now seen on the boards of private companies, SMEs and, more recently, startups, as more organisations recognise the value NEDs can bring.
However, overboarding has become a growing issue. This refers to NEDs who sit on an excessive number of boards, which can result in an under-commitment of time and attention. Setting an expectation to mitigate the issue of overboarding will be important as part of an increased emphasis on board quality.
Yet even with a reasonable commitment, NEDs are expected to step in to do what is needed in times of crisis. NEDs can quickly become overworked when a crisis hits multiple companies at the same time. It’s commonplace for NEDs to take on excessive stress with little recognition or help from the organisations they work with.
Our members aren’t always looking for remuneration for the extra hours worked but there is clearly a need for firms to extend the same duty of care to their NEDs as their employees receive. This should address any health and wellbeing issues that may arise during stressful periods.
We recommend that chairs also take a level of responsibility for supporting those on their board and encourage NEDs to seek counsel from peers.
Why it pays to invest in NEDs
NEDs are vital to a thriving business and the UK economy. In the past decade, the role of non-executive director has been instrumental in diversifying UK boardrooms which brings endless benefits to British businesses, not least the diversity of thought and experience essential for innovation and creativity.
Nurturing NED talent is key to building an effective board. Companies should expect to get out what they put in, so invest the time and resources in identifying the right people with the right expertise, paying them competitively and giving them the right levels of support and protection.
Fiona Hathorn is CEO of WB Directors, an organisation that aims to increase diversity in executive and non-executive leadership. She also advises a number of different boards and organisations.
