The Value of Appointing Non-Executive Directors

Start-Ups

If you are setting up a business, appointing additional board members may be considered an expensive luxury and a little top-heavy. However, the value that a Non-Executive Director (NED) can contribute will greatly offset any costs involved and could accelerate your progress.

An experienced mentor allied to your company can inject an objective opinion towards your business decisions. A small start-up has a better chance of success with a wealth of experience available, a broad knowledge and useful contacts.

Sometimes, it’s suitable to offer a small equity stake in the business. This will help the NED to feel genuinely involved on an on-going basis plus an added incentive to drive towards success.

NEDs can also be a useful sounding board for a business owner. A seasoned entrepreneur will have experienced the highs and lows of start-up businesses; having access to an ‘equal’ with different experiences and knowledge often enables a solution to emerge.

The website, NonExecutiveDirectors.com, which aims to place NEDs with public and private sector companies, claims that demand is growing for NEDs amongst SMEs (Small/Medium-sized Enterprises).

Growth

As mentioned, a Non-Executive Director is a mentor with an ongoing interest in the business. Whilst it is useful to have advice during the company start-up, growing the business requires good planning and a solid management team. Having experienced NEDs on board can successfully accelerate growth.

The Board of one SME first appointed a NED when business was undergoing change, realising the value of input from someone who had experienced such changes in a similar industry. There are now two NEDs on the team, with different skill-sets. They attend board meetings, join discussions and offer advice, but have no role in the day-to-day running of the company.

Your requirement for advice and support may be in sales, manufacturing, marketing or finance. Even if a department has been running efficiently as a small business, expanding the company to prepare for a higher level of business may often requires additional specialist experience.

The NEDs perspective

To feel part of the team, Non-Executive Directors need to meet the people they will be working with in terms of goal-sharing. A name with a face means that interaction with key personnel is more meaningful to both parties.

In the UK, Non-Executive Directors have the same legal duties, responsibilities and potential liabilities as Executive Directors. The main difference is that they have no executive role. Also, the usual commitment to a company is only a couple of days or so each month.

So what makes a person choose to become a NED? Quite often, they are early retirees with the opportunity to pursue a balanced life-style and a desire to put their wealth of experience to good use. Many get a real ‘kick’ out of helping businesses to become successful.

Most NEDs are paid but some may be willing to volunteer in return for a stake in the business and having expenses covered (including their liability insurance cover). A typical income for a NED seated on the board will be between £500 and £2000 per month, depending on the industry sector, the size of the company and the number of days contracted.

ID Your NED

With the board decision taken to appoint a Non-Executive Director, there are a number of ways to find suitable candidates:

  • recommendation
  • advertising
  • research, e.g. via search engines
  • your LinkedIn connections
  • business institutions
  • networking

Choose someone who has the experience and attitude appropriate for your company. Ideally, your NED should have a good network of contacts which could help the business. Often, NEDs willing to take part of their reward as performance-based equity in the business are more likely to remain for the longer term. And finally, all senior management must work towards the common goal and have equal respect for others on the team.

If you would like to discuss NEDs or Mentoring, contact Nauzar Manekshaw at MIERA Consulting, (contact details below).