Why firms may need a ‘NED’
Grant Thornton’s Maeve Hunt explains the role non-executive directors can play within SMEs
The appointment of non-executive directors to the boards of SMES in Northern Ireland is becoming much more common. A non-executive director (NED) is an individual who works parttime for a business, bringing knowledge and experience to a board. NEDS will often have a number of directorships, dividing their time between different businesses and will typically have enjoyed a successful business career. For growing businesses looking for honest and inexpensive strategic advice, a non-executive director can be key to their success.
Whilst for public companies non–executive directors are a statutory obligation and essential in dealing with corporate governance matters, NEDS often undertake a very different role for growing SMES.
For large/public organisations, NEDS are principally responsible for overseeing and monitoring the performance of senior management, including executive directors. In SMES their role is more focused on providing strategic advice and guiding your growing company through the financial and regulatory hurdles which impede your progress.
As NEDS do not have a handson role, they will bring significant benefits to companies of all sizes by providing an objective perspective on the business and recognising opportunities that may otherwise be overlooked.
They are often chosen to provide expert insight and knowledge in a particular sector and their experience and awareness of potential competitors.
Alternatively, their skills may provide financial expertise to help raise capital or sell businesses, or to help with management recruitment. NEDS often add credibility and professionalism to a company’s board as it prepares for certain transactions or investment opportunities.
Private equity funds and venture capital investors value the input of NEDS and will normally look to appoint individuals who have a wealth of experience to the board as a condition of their investment.
Executive directors, who in SMES are frequently also shareholders, will often value the involvement of an independent but knowledgeable person to mediate and resolve strategic differences between the executive team.
Before appointing a NED, SMES should consider the qualities they need within their organisation. The ideal candidate would be one with extensive and relevant experience in their industry, but someone who has strong relationships with business advisers can also help in determining your particular business needs. Smaller businesses tend to opt for a NED with a finance background as they can be helpful in executing transactions correctly and often provide a valuable skillset for businesses on a growth curve.
NEDS will be most effective where management have clear, specific reasons and objectives for the NED appointment at the outset. Management needs to be sure the company’s views and the NEDS views for the future are aligned in advance of an appointment in order for the NED to deliver the best value for money.
It is generally accepted, however, that the appropriate NED with the relevant experience will provide skills which are helpful in controlling the growth strategy and adding real value. It is likely the perfect NED is someone you may already know.