Building Better Businesses
25 November 2015
The New Director Boot Camps developed in partnership with NISP Connect and supported by Arthur Cox are the starting point for any individual or company that wants to understand why it is important to have a Board that works properly.
During 2016 and going forward, the Institute will offer a series of workshops on what makes an effective Board, including the value of having at least one non-executive Director (NED) on the Board, which is the subject of a research report commissioned by the IoD from Ulster University.
The report entitled Exploring the Role of Non-Executive Directors in Firms in Northern Ireland was produced by Caoimhe McGuinness, as part of her MSc in Management & Corporate Governance at Ulster. Caoimhe is now working for Herbert Smith Freehills.
Benefits of a NED
After conducting in-depth interviews with both executive and non-executive Directors in a number of local companies, Caoimhe concludes that while respondents could not point to a specific link between NED contribution and a firm’s performance, every Director and NED interviewed felt that the NED contribution undoubtedly added value to the firm, with most believing the NED role helped improve the firm’s profitability.
Key themes have emerged from the study about the role NEDs carry out effectively for the boards they serve on. Strategy formulation was considered to be one of the most important roles that a NED plays in any firm. As the interviews revealed, particularly within SMEs, Directors often get caught up in the day to day management of the company, and so it is easy to see why bringing in an independent outsider who can devote time and resources to developing a strategic plan is considered to be so valuable and beneficial.
The research findings also highlight the importance of NED impact on Boardroom decision making, challenging and monitoring the Board. This is why the NED needs to maintain their independence, and receive all appropriate information from the Directors.
The Directors interviewed noted that non-executives should only serve on each board for a certain duration (with some suggesting a five year limit) so as to keep bringing in fresh eyes, new perspectives and new resolve to challenge. It is worth noting however, that the majority of respondents stated that the NEDs had actually helped them greatly by forcing them to arrive at decisions faster, ‘pushing them over the final hurdle’.
The presence of NEDs on a firm’s board is externally respected and helps enhance the reputation and credibility of a company, which is particularly beneficial when it comes to the matter of sourcing external financing.
NEDs can fill certain knowledge and skills gaps on the board; executive Directors noted the benefit that this brought to their firms. A further benefit of NEDs that arose across the interviews was the ‘mentoring role’ of the non-executive to the executive Directors. It was noted that often the NED acted as a ‘wise counsel’ to the Directors, as well as offering them a ‘shoulder to cry on’ and advice from someone who was internal to the company, but not involved in the operational delivery.
Findings from the report, which has been endorsed by BDO and Invest Northern Ireland, will be developed through further research and IoD activity to build better boards.