How to become a non-executive director – what you need to know

Fraser Silvey

By Fraser Silvey

21 Jul 2017

Over the last decade there has been considerable growth in 'portfolio careers', derived from having multiple simultaneous jobs on a flexible, interim or consulting basis. The upsides are obvious and include variety, a better work and home life balance and the ability to be your own boss.

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One of the most common elements of a portfolio career are non-executive director (NED) positions as they can offer the benefit of regular income stream, help develop skills and profile as well as the obvious attraction of being included in the strategic running of a business without being bogged down by the day to day grind. These roles are often suitable for senior executives who are leaving full-time corporate employment.

However, there are downsides. Breaking into the non-executive world and securing that first role can be tricky. Often people wanting to be NEDs face the same catch 22 scenario as people looking for their first job or a change in career path; namely you can’t get a job without the experience but can't get experience without the job!

Due to the business-critical nature of a NED role, boards approving new NEDs gravitate to people who have prior experience in the area, know how a board operate and how a good NED can make a real difference.

It makes sense then that the most common way to overcome this catch 22 situation is to secure a non-remunerated NED role such as in the not-for-profit sector as this makes accessing further non-executive opportunities easier.

The Institute of Directors (IOD) estimates that as many as 75% of all NED roles are unpaid, a surprisingly high figure that tells us that, somewhat like professional football, it is hard to break into and there are not as many people earning a living from it as we might think.

The purpose of this article is to give you hints and tips on how to secure a NED role, be clear on the role of an NED, understand your legal duties and assist you in your due diligence process. 

What is a non-executive director?

A non-executive director is a member of the board of directors of a company or an organisation but is not part of the executive management team. They are not employees; however they do have exactly the same legal duties, responsibilities and hence potential liabilities as their executive counterparts on the board.

In short, the NED role is predominantly advisory, providing dispassionate and objective criticism. According to the IOD, NEDs provide an independent view of the company as they are removed from its day-to-day running. 

 

The role of a NED

The IOD states that NEDs are expected to focus on board matters and not stray into 'executive direction' thus providing an independent view of the company that is removed from day to day running. The IOD highlights the 11 C's of the NED role: 

  • Contributor
  • Challenger – of executive's proposals
  • Contact provider
  • Confidante
  • Conciliator
  • Checker of board processes
  • Crisis manager
  • Coach to executive directors
  • Consultant
  • Compensation
  • Conscience of the company.
  • Strategy – constructively challenging and contributing to the development of strategy;
  • Performance – monitor and scrutinise the performance of management in meeting agreed goals and objectives.
  • Risk – satisfying themselves that financial information is accurate and financial controls and systems of risk management are robust and defensible.
  • People – determining appropriate levels of remuneration of executive directors, having a prime role in appointing and where necessary removing senior management and planning for succession.

What is clear is that being a NED is a proper role with real responsibilities – it is not a collection of part time jobs. Therefore, anyone taking on this role must be committed to it and fully understand the legal obligations

Securing your NED role

As we have already discussed, being a NED is a proper role with the same legal responsibilities as an executive director. Here are some key points to consider when applying for NED roles:

  • Always tailor your application and be clear on why you would want the role, what you bring to the board, how you fit the criteria etc. You will be amazed by how many directors just recycle the same CV and application time and time again.
  • Use the mirror technique - matching your skills and experience to the job description.
  • Wherever possible speak to the gatekeepers or decision makers to get as much context as you can behind the opportunity. There is almost always supplementary information that they can provide you that will significantly aid your application.
  • Align your application and approach to reflect the culture of the organisation.
  • Identify additional, relevant skills, experiences, relationships that you can bring to the organisation that they might not have considered.
  • Remember that the way you go about the recruitment process is a good way of demonstrating the competencies you say you have.
  • Most CVs and applications leave the reader saying "so what". They tell the reader what you were 'responsible for' but fail to tell the reader what the result of that was. When you read through your application and CV satisfy yourself that you pass the "so what" test.
  • Don't be discouraged if you don't succeed. This is not a reflection of you not being a strong candidate or not good enough. The field is very competitive.

The legal responsibilities of a NED

As previously discussed, while there are differences between executive board members and NEDs, when it comes to the law, there is absolutely no difference whatsoever. Therefore, as a NED you are bound by the Companies Act 2006 on Directors' General Duties, namely: 

  • To exercise reasonable care, skill and diligence;
  • To promote the success of the company;
  • To act within powers;
  • To exercise independent judgement;
  • To avoid conflicts of interest;
  • Not to accept benefits from third parties;
  • To declare interest in proposal transactions or arrangements.

With these legal responsibilities, it is therefore absolutely critical that you perform comprehensive due diligence prior to accepting a NED role and do not get caught up in the 'courtship' of being offered the role without fully knowing what you are getting yourself into. In the next section we will look at some questions and ways of performing your pre-appointment due diligence.

The NED due diligence process

The questions you can ask

  • Does the organisation know what to expect from a NED?
  • Has the organisation used a NED before and if 'yes' - what worked and what didn't?
  • What is the primary reason for bringing in a NED and what does success look like?
  • What can you tell me about the other people on the board?
  • How does the board operate and how frequently do you meet?
  • What is the time commitment required?
  • What are the insurance levels?
  • What is the term or contract length for this role and the notice period?
  • What are the fees?
  • What are the expenses?
  • What is the review process, during and at the end of my contract?
  • What are the potential conflicts of interest?
  • What is the non-compete agreement? (This may prevent you from taking over NED roles).

Doing your background research

  • Look at Companies House
  • Analyst comments
  • Credit ratings
  • Director profiles
  • Do your due diligence on the company accounts
  • Speak to people in your network.

Connor helps organisations improve performance through their people and we support individuals throught the employee lifecycle. Talk to me today if you'd like to discuss what we could do for you.

 

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