Why firms may need a ‘NED’

Grant Thorn­ton’s Maeve Hunt ex­plains the role non-ex­ec­u­tive direc­tors can play within SMEs

Belfast Telegraph - Business Telegraph - - Front Page - @Grant­thorn­tonni By Maeve Hunt, As­so­ciate Di­rec­tor of Au­dit For fur­ther in­for­ma­tion, Maeve Hunt can be con­tacted at maeve. hunt@ie.gt.com or visit http:// www.grant­thorn­tonni.com/ Grant Thorn­ton (NI) LLP spe­cialises in au­dit, tax and ad­vi­sory ser­vices

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.

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