Here at Six Degrees we have been involved in recruiting a number of Non-Executives for different companies in Cumbria. The below article resonates well as recruiting a Non Executive for a small business isn’t about governance, it is about what they can do to help drive the business forward along with utilising their skills and experience to help really add value and to support the management team.
For entrepreneurs looking for strategic advice, a non-executive can be a fast-track to commercial wisdom, astute introductions and constructive criticism of your strategy. Here’s how to find one, what to look for and how to get good value from their input.
A necessity in public companies, the official role of the non-executive director involves corporate governance, monitoring executive activity and providing strategic advice. The quality of the advice offered by those occupying the UK’s most powerful corporate governance positions over the last few years is a moot point. Thankfully, there’s a world of difference between a corporate non-executive position and what an owner-manager of a small business will be looking for. “The role of the non-executive in small businesses is likely to be less about corporate governance than adding credibility, business experience and commercial introductions,” says Roger Jennings, a former chief executive of fashion chain Austin Reed, and a non-executive director of £1.3m turnover Limelight PR.
Why add a non-executive?
Expect to hear the phrase “sounding board” a lot if you ask an entrepreneur running a private company why they decided to add a non-executive. The cliché that running a small business is a lonely occupation is particularly apt when it comes to making crucial strategic decisions. “Only experience can help us make the right decisions when we come across challenges,” says James Parsons, director of recruitment firm Arrows Group. “Our non-exec [former Harvey Nash chief executive David Higgins] stopped an area of our European expansion which we now realise would have been a bad move.”
The right adviser can also add credibility ahead of a major deal or prospective investment round. “An experienced non-executive gives an investor confidence in three ways,” says Mike Chalfen, general partner at venture capital firm Advent Venture Partners. “First, it has been able to attract an informed senior person who is willing to devote time to coaching the team. Secondly, the non-executive should have added some perspective both to the decision to take new capital and the plan to support it. Finally, some aspects of due diligence can be focused by the non-executive’s views of where the company and team is struggling and needs reinforcement.”
Equally important is the challenge a robust non-executive can provide to a single-minded and autocratic business owner. “Disagreements indicate that non-execs are adding real value,” says Guy Nixon, chief executive of £29m accommodation services business Go Native, which added two non-executives as part of a radical shake up of its senior management last year.
“We had two situations where we fundamentally disagreed. In one case, we changed the strategy, and in the other we stayed. Our decision making process has been greatly informed by the disagreements.”
Decisions will still rest with the chief executive or executive board, of course. “It’s the non-executive’s responsibility to influence the chief executive and board correctly and give the best advice possible,” says Jennings.
What to look for
Non-executives in small firms tend to fall into one of two broad camps: the non-executive chairman who advises on direction and strategy, and the non-executive finance director who can offer a more mature approach to managing finances as the business grows.
Some owner-managers add advisers to fill a gap in their own experience, others to add industry knowledge of a specific sector their company is targeting. “Appointing someone with a particular set of competencies can represent a unique opportunity to gain specific insights, such as to a market or technical skill, in a very efficient and economically sound way,” says Davide Sola of the ESCP Europe Business School, a non-executive for small businesses in the UK and France. An appointment that adds focused expertise can be particularly useful when entering sectors with complex regulatory requirements, for example.
However, many entrepreneurs are specialists filling the shoes of a generalist in order to manage a company’s growth, so the majority of small businesses will be best served by an adviser with general knowledge to add. “You should recruit on the basis of their broad business experience,” says Jennings, “not specific functional experience. No one will know the specific aspects of the business better than the person who started it.”
Parsons agrees, and this was part of the selection criteria for the role at Arrows. “It was important to have someone with an understanding of business which would enable them to advise us across the board on everything from talent management to legal issues.”
All of the entrepreneurs and advisers we spoke to agreed that the ability to offer astute commercial introductions should be part of the equation too.
Avoid the dreaded ‘trophy appointment’ – a retired executive, no matter how illustrious, looking for a hobby. Useful, ongoing strategic input and trophy appointments are often mutually exclusive so the nature of your selection process could determine whether your time and money is well spent. Where a potential non-executive has come through your own network, an informal process can work. “We used discussions over a long period of time,” says Nixon. “A very honest dialogue was key in terms of managing expectations. They choose you as much as you choose them.”
Sola adds that other board members and key managers should be involved in the process as well, while Parsons says that a formal interview process can be useful for appointments from outside of your personal network. “We were introduced to a number of people by industry bodies and a couple of other businesses. An interview process allowed us to identify the motivations and goals of each person and match these to our business plans to see who was most suitable.”
Where to find them
“Finding the right non-exec is as difficult as finding the right employee, and in many respects, more difficult,” says Sola. Using your personal network is the most obvious solution and can often be the best bet in terms of providing someone who will understand your business and will work well with you. An adviser that comes recommended by someone you know and respect arguably has a better chance of being a cultural fit than someone introduced to you by an executive search firm. If you’ve got a particular profile for a non-exec in mind, however, a specialist recruitment firm is bound to have more reach than your personal network, and as long as the selection process is comprehensive, both approaches can work well. Professional online networks and communities, some of which offer networking events for advisers and owner-managers, provide another potential avenue and industry bodies can also help.
Finally, entering awards or being interviewed in the press to raise your own profile can make finding the right adviser much easier, according to Barry Houlihan, chief executive of mobile agency MIG, which has four non-executive advisers. “We’ve won various awards, which has given us the chance to network with other like minded entrepreneurs and seek out advisers,” he says.
The Non-Executives Directors Association might prove useful once you’ve hired the right person; it provides training and ongoing advice for non-executives and also advises companies on how to assist them in fulfilling their roles effectively.
What to pay
Non-executive advisers should never get involved in the day-to-day running of an organisation, and their remuneration should reflect their time commitment. A couple of days a month is typical, as is the flexibility to offer more time around key events such as an acquisition or a troubled period. There’s plenty of disagreement on whether performance bonuses – which are forbidden for non-executive directors of public companies – are a good idea.
Jennings believes a flat rate salary is best. “The role is to offer long term strategic advice, not make profit-based, short term decisions.” The average non-executive director of a FTSE 100 company received £58,595 a year in 2009, and salaries “should be scaled pro-rata accordingly for smaller businesses”, Jennings says. “Pay really depends on the seniority of the non-exec,” adds Sola. “In my experience it ranges from between £1,000 – £4,000 a day.” Houlihan, however, opts for a salary plus share options tied to contribution, while Parsons believes a performance related bonus “helps to ensure the non-exec’s interests are aligned with the business”.
Taken from an article by James Hurley, The Telegraph