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Becoming a NED

31 October 2016

Becoming a NED - read more

Company secretaries can transfer their skills to non-executive roles

Ambitious company secretaries are ideally placed to take on non-executive positions. They have a deep understanding of technical governance issues; are familiar with shaping boardroom discussions; have experience of board dynamics and dealing with powerful executives; and are independent from the board. If you are thinking about becoming a NED, there are some key areas that you should consider.

Key skills

Effective non-executive directors question intelligently, debate constructively, challenge rigorously and decide dispassionately. They bring a calm, reasoned view when tempers have frayed. From your experience as a company secretary, you will know how to manage a project calmly in the face of difficulties.

Sound judgement comes with experience and strength of character is needed when you are faced with a dilemma. In these circumstances, you need to stand your ground – remember, it is your reputation, as well as the company’s. In a board meeting, there are a lot of people wanting to make a point, so it is useful if you can be persuasive and frame an argument well. You should have the ability to manage conflicts as inevitably these arise. Try to stay calm and negotiate your way through them.

It is essential that non-executive directors focus on the long-term success of the company and leave aside issues of personal preference. Having integrity and high ethical standards are essential. Not only will this help to achieve high standards of governance, it will protect your own, and the company’s, reputation.

Strategic thinking

One important difference between being a non-executive director and being an executive director who manages a department, is that the non-executive is looking at the bigger picture and generally overseeing activity. Taking a long-term view is important, arguably more so than being able to look at the detail.

One key point is the ability to stand back and keep interventions at a high macro level, rather than micromanaging. NEDs are not playing a starring role, they are the facilitator and there to support and encourage the board.

Companies look for strategic skills in non-executives, simply because NEDs are expected to contribute to strategy. An organisation will be looking for something in your background which it believes can be utilised to make a contribution to the board and wider company.

Even though the executive team proposes a strategy to the board, it is useful if a NED can challenge and add to it. NEDs need good evaluation skills so that when a project comes forward, they can see the key points in it.

What companies want

Alongside the strategic skills, companies are looking for financial acumen and commercial understanding. No matter what type of organisation it is, finance and stewardship of assets are crucial to effective leadership. NEDs need to understand a balance sheet and a profit-and-loss account, and have commercial understanding of what might work and what will not.

NEDs also need to be aware of performance measurements and management. This does not mean knowing the nth degree of detail, but being able to request reports and assess what has happened in a particular case. It also means being able to oversee a framework of management controls with an appreciation of risk. A good methodology for discussing, assessing and managing risks is also needed.

NEDs should have an outward focus and be natural ambassadors for their organisations. As a board member, they represent the organisation to the external environment – whether that is to shareholders, regulators, government departments or the general public and the media – and being able to handle that is vital. So they must be committed and have a genuine interest in the work of the board and the organisation, and be keen to go the extra mile.

Companies are also looking for knowledge of governance implications. NEDs must understand what good governance is and how it can help organisations work better – you do not need to know every detail, but must appreciate the importance of governance and how it can support boards.

First steps for new NEDs

There are two ICSA guidance notes that are particularly helpful for new NEDs. One is ‘Joining the right board: Due diligence for prospective directors’, which includes everything that NEDs should consider before joining a board.

The second is ‘Induction of directors’, which outlines what a new director should expect from the company in terms of briefings, meetings, site visits and information, in order to put them in the best position to contribute as early as possible. Both of these guidance notes can be found on the ICSA website.

Being familiar with board dynamics will be useful for all first time NEDs. If you can get your current company to put you on a subsidiary board or, as part of your development, support you in being a NED on another board, you can gain excellent experience.

Once you are on a board, some companies operate a ‘buddying’ scheme – where one of the directors will be in a particular partnership with you and help to get you up to speed on things. Take advantage of this.

New NEDs also need to consider whether they have enough time to dedicate to the role. This may mean attending many more meetings than initially expected, particularly if the company is in crisis. When the going gets tough, you will need the energy to fulfil what is expected and to keep going in challenging circumstances.

However, directors need to be careful not to get onto boards where they feel that the standards are not of a high level. So one of the first things you should do when looking to join a board is to find out who the other directors are and meet them to see if there is a meeting of minds and values.

All NEDs must consider their legal liabilities and, allied to that, the company’s insurance policy for its directors. It will give some comfort in decision making, as unless you are negligent or commit fraud, you should be covered by the insurance.

Before you begin in a NED role, get yourself up to speed on everything the organisation does, its background, its strategy and history. Find out what governance regime it has in place. If the company is listed, you need to be thinking about whether you are confident with all the listed company requirements.

If the company is regulated, especially if it is in financial services, there is a whole extra layer of regulation and potential liability. However, there are also many different regulators. So, for example, if you are thinking of joining the housing association sector, you will need to understand exactly what the regulator requires and how those requirements work in practice. Learn about what governance means to the sector.

Your experience

When applying for a non-executive position, you need to have a clear idea of what you can offer a board. Companies that require NEDs want to see your attributes and background, which should be something that the company can utilise.

You may have particular strategic experience, which is similar to the direction the company is heading in. NEDs joining boards of large companies will be expected to sit on one or more committees.

Think about whether you are capable of joining the audit committee, the nomination committee or the remuneration committee. Present that as part of your application; you may, for example, choose to highlight your governance background. Alternatively, you may feel your financial skills are a better fit for that of the audit committee. Think about where you can make a difference.

Find out who the NEDs are that are already on the board and consider where there might be gaps or where you could contribute a different perspective. Look at what the company has said about future strategy. For example, if the company is expanding into South America, and you have worked there in the past, state this early on in your application.

So rather than submitting a standard CV, stress your brand. Highlight your most relevant knowledge and interest in governance, and how this practically helps the company’s current position. It is a good idea to outline how you have contributed towards board effectiveness in the past and your value set. It is important to talk about the way you see the world, and the way you want to behave.

The challenges

Some of the challenges for boards to consider are the culture, behaviour and ethics in the company – the Financial Reporting Council has recently published its culture project findings. There is a massive focus now on making sure that the board sets the right values and standards, and NEDs should give input on this. They should ensure the right culture gets drilled down into the business and find ways to measure if that is happening in every part of it.

Remuneration is also as important. NEDs need to make sure they actually understand the plans that are being implemented for the executives. Some remuneration plans are so complicated, they are difficult to understand. NEDs need to ensure that they are able justify the payments.

Where performance does not align with reward, shareholders will be vocal as the whole board is accountable for fair remuneration. High rewards associated with high performance are less likely to attract criticism.

NEDs can demonstrate that they are performing well by having a good relationship with all their stakeholders and responding to them in a way that is appropriate – whether that is reporting to the government or dealing with shareholders, a regulator or an industry body.

Diversity of gender, in particular, continues to be a major concern – but diversity of all types is important. This enables true diversity of thinking and avoids box-ticking. Companies want different views around the boardroom table, so that the board is likely to come to a well thought through decision and therefore create a better company.

Risk management is another big issue. The key here is that up until a few years ago, it was dealt with, largely, by audit committees. Now it is on the board agenda because the board has to determine the risk approach. It has to oversee the risk management and have a handle on the key risks.

NEDs need to make sure that they are given the information they need, so that they are able to assess them properly. Supply chain management is also a board issue, particularly with ethical and human rights practises, including modern slavery, which must be reported on. NEDs should have some input into risk assessment of the supply chain.

Non-Executive Directors’ Programme

ICSA’s one-day course offers both new and experienced NEDs an essential understanding of their role and how they can maximise their effectiveness. For more information or to book your place, visit the ICSA website.

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ICSA: The Governance Institute
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