28 September 2015
As the role of the NED changes, there is an opportunity for the company secretary
With an increasing governance load on non-executive directors, CEOs and executive directors are wondering whether NEDs are starting to impinge on executive territory. NEDs are clear that they must maintain their independence. Their professional mindset enables them to resist the temptations of ‘going native’.
The role of the NED is clearly changing substantively and the day of the ‘hi-vis’ activist NED has arrived. It is unclear how these changes will work through the board system as the triumvirate tectonic plates of chairman, CEO and NED begin to shift.
The changes are being driven by an evolution of the NED role: greater time commitment; regulatory and personal desire for more activism with independence; increased turnover of NEDs on boards; a wider range of company stakeholders views which need to be accounted for; and a spotlight on the behavioural dynamics of the board.
As NEDs grapple with the competing voices and demands, company secretaries can find themselves in an uncomfortable place. They are caught in a time where the increased governance frameworks are still fragile and not yet at the point where they facilitate board interaction or advance company strategy. The vaunted ‘strategy day’ varies from the executive telling the board what next year’s budget will be, to an open dialogue, which pulls in not just the broadest range of NED viewpoints, but stimulates the debate and shapes of the company’s strategic intent. Who controls and manages this strategy day is a portent of board dynamics. The company secretary, who is supporting the board and NED interaction, should play an important role in shaping the day and encorporating external viewpoints to reflect the NED’s needs.
The impact of NED turnover on boards is significantly underrated. It needs a more systematic and engaged selection process and should be planned well in advance. The whole board should be involved – from the specification of the skills and experience (and realistic time commitment), through the head-hunter briefing and shortlists to the final selection interviewing. There should be a greater focus on diversity of gender, background and thinking. This ensures the appropriate skills, experience and behavioural profile has moved beyond the ‘skills experience matrix’, to a greater articulation of what is needed to develop, maintain and hopefully not downgrade the board dynamic. Company secretaries who are not able to contribute to this dialogue will be side-lined in this important area for the board.
When the new NED arrives, there is a major role for the company secretary in shaping and maximising the effectiveness of the induction process. In particular, with the pressure of NED turnover and maintaining gender diversity (remembering the target will be increasing), boards are often in a position where 30–40% of their NED population is on an upward learning curve, which in more complex companies can be steep. The methods of mature executive learning and development should be brought to bear with initial planning, follow-through, reviews, re-appraisal of outstanding needs and reinforcement, reflection and evaluation of outstanding requirements. These new areas of company secretary skills and understanding can be effective in achieving a well-oiled and informed board dynamic and discussion. If 40% of the NEDs are not quite up to speed, effective strategic discussions can quickly become dysfunctional.
The debate on the activist or non-activist NED is sterile. The reality of company life today is one of boards and NEDs taking an activist oversight, not just of the financial performance but of the culture, executive pipeline, corporate responsibility, supply chain provenance and standards of behaviour in the far flung corners of the company environment. Certainly, most of the new and developing NEDs take these challenges as read and see themselves as able to maintain a clear division between oversight and interference in executive responsibilities. It is usually the executive directors and NEDs with current executive responsibilities, who are most sensitive to this distinction and tend to take a reactionary viewpoint. Boards are getting used to NEDs becoming more intrusive, with a realisation of their own personal responsibility and reputational risk, and this is being reinforced by more sophisticated training in board governance.
Greater activism means that the company secretary can play a more influential role in shaping boards in response to changing stakeholder pressures. The mindset has been evolving more rapidly in some businesses than others. New thinking is emerging; from the customer becoming a priority and employees viewed as a building block of sustainability; through more assertive regulation based on past misdemeanours; to the rise of the shareholders’ fund managers driven by the demands of their own performance metrics. This requires that these voices are a more substantive part of the board debate.
Currently the regulators are in the ascendency, dominating financial services in particular but with a potential spill into the broader company environment. Customers are developing greater prominence in some sectors; the employee and leadership cadre of the company is also recognised as both a sustainable asset and a driver or constraint to growth and efficiency. Finally, as the public company shareholder register becomes more diverse, it is more difficult for boards to understand and respond to the edict of maximise shareholder value.
These shaping forces have been accelerated by ubiquitous social media. Customer and prospective employee opinion of a company can be shredded at the touch of a button and reach the public in an instant. Reputations are played out in cyberspace as the professional fund managers and shareholder populations search their phones and tablets to inform themselves and gain an edge.
If the company secretary, working with the chairman, does not respond who else will? The other parties all have a vested interest, including NEDs who can easily become too conservative, too risk averse and too procedural, forgetting the entrepreneurial aspect of business. Consequently, the shaping of systems and information which feed and provide objective clarity on these issues is inherently the role of the company secretary. Information provision is an example where they hold a pivotal position and can overcome the haggling between ‘too much’ and ‘too little’ to ensure it is fit for board purpose and not simply a re-hash of existing executive information.
The test of the NED’s ability to navigate, assimilate and come to sensible conclusions and questions from a mass of data, while struggling to compete with the asymmetrical knowledge of the executive team, would be a good contender for the next ‘Marvel Comic’ movie franchise. Are we asking too much of the company secretary to deliver superhuman NEDs, who not only make sense of this morass but also have enough energy to look at tomorrow’s horizon and foresee the next threat? I would suggest not, however, there are exemplary role models out there who are shaping the board environment. This requires a reframing and development beyond the technical base of the company secretary and focuses on the skills of influencing, strategic thinking, information management, consulting and an understanding of behavioural and human psychology.
The company secretary community should see this as an exciting time, with the opportunity to change and develop both the board and themselves beyond the confines of our traditional view.
Helen Pitcher OBE, Chairman of Advanced Boardroom Excellence