Shareholders are increasingly active, empowered and willing to apply greater
scrutiny to board performance, culture and behaviour than ever before.
Increasingly, executive and non-executive directors (NEDs) not only find
themselves individually and collectively held to account by their shareholders,
but often directly in the firing line when things go wrong.
Hoggett Bowers non-executive director & Chair lunch was therefore a timely
opportunity to reappraise the role of the NED and the expectations now placed
upon them by shareholders, employees and regulatory bodies. As we anticipated,
the subject matter generated much lively and informed discussion, which centred
on the responsibility, behaviours and accountability of today's NED, as well as
challenges to come.
This year we have witnessed several high-profile UK
public companies, such as Carillion and Conviviality, entering administration,
with disastrous consequences for employees, customers, suppliers and
shareholders. The boards of privately owned businesses have been equally
exposed, particularly among retail and leisure businesses, where throughout the
year we have seen a flurry of administration, refinancing, CVA's and £1
So we asked “In light of the changing world and new
challenges, how have NED priorities changed over the last 3 years?”
NED of an AIM Listed fintech responded by stating, “the objective of the board
was to steer strategy, yet the challenges facing boards today mean there is
very often insufficient experience amongst the NEDs to support these
challenges. The result being unconscious incompetence which is a real
A NED for a NYSE listed business, made a number of points. In
his experience there is a wide variance in the level of involvement of NEDs
and how executives use them. He is also a Chair for a sporting body and said
in this sector, boards are focused on governance and therefore, there is a
need for NEDs to be far more independent. This is at the expense of utilising
their commercial skills. In contrast, his appointment in the USA to the board
of a FMCG business was unusual, as prior to him all the board were CPA
qualified. This had resulted in a one-dimensional board lacking any diversity
of opinion. Today, as the lone commercial individual, he finds it hard to
influence commercial strategy as the main function of the board seems to be to
follow rules and tick boxes.
Some NEDs collect fees, but
add little value, hiding under the mystique of governance.
struck a chord with a guest from a shipping business, who said in his
experience many boards prioritised corporate governance over commerciality.
“Ensuring governance boxes were ticked seems to be the number one priority
rather than responding to any commercial realities in the business”. He also
suggested many NEDs were collecting fees as opposed to adding value, hiding
under the protection of governance as the answer to problems within the
The NED of a private equity backed animal nutrition and food
business felt that many boards did not ask the right questions in order to
challenge thinking. Many NEDs are simply not prepared to dig deep enough into
the detail preferring not to upset the collective apple cart. As a result,
“How many more companies will follow Carillion - could they just be the tip of
Why not align boards by appointing NEDs with
a commercial interest?
In agreement, the founder of a PE house and
Chairman who sits on many private boards and as an investor, questioned why
the independence of the board was such a priority. “Is it not better to ensure
board members are aligned by having a commercial interest in their business
and therefore, more motivated to dig deeper into the detail?”
Chairman of a listed hotel group and investment house interjected that he had
been 'red flagged' as a chairman of an AIM listed business as he owns more
than 1% of the shares. He argued that he took a much more active interest in
the business as well as governance because of his own investment and personal
The behaviours on many boards are a product of the
codes of 70's & 80's.
The Chairman of a power network operator felt
much of his role involved box ticking and bureaucracy. “The behaviours on many
boards are a product of the 70s & 80s and yet the world is moving quickly,
indeed much more quickly than in past decades. Cyber risk is a good example.
Cyber risk is such a new phenomenon that most boards do not have real knowledge
or experience, which presents an obvious problem. This begs the question - Are
boards fit for purpose? It does not seem so in many cases as too many boards
are not sufficiently forward looking and are focussed on the short term. The
role of the non-executive is changing very rapidly and perhaps now is the time
to look at the constituents of a board”
thought, on boards is very important.
Changing the focus to the source
of non-executive board members, one NED commented - “Diversity is increasingly
important - yes gender and race, but even more important is 'diversity of
thought'. The supply of NEDs to boards needs to expand fora greater range of
thinking to come about. Too often the supply of NEDs is narrow and repetitive.
Who are the custodians of this?”
This prompted a rather pointed comment
from a Chair and NED from within the transport sector who questioned if NEDs
should be subject to an annual performance review. “This should be formal and
rigorous - to ensure that they are fit-for-purpose and are making an effective
Social media gives the public a voice on
the performance of the boards in the public eye.
Social media provides
a platform to question board performance publically. This certainly helps,
although it is not as prevalent in the UK as in other countries, where it is
increasingly common for boards to receive feedback and criticism in this
The Chair of a Regulatory body believes that social media
has transferred power to the consumer. The public can now voice opinion and
directly influence company boards via social media, which can be a force for
good, as well as being a negative distraction. However, she warned, the
'power' can be restricted to extreme and loud voices, where a handful of
individuals can create disproportionate noise and negative PR. She offered one
example, where in response to one issue, she had received as many as 50,000
emails. 35,000 of these came from only 6 individuals!
A NED from the
insurance sector argued that the way NEDs are recruited needs to change.
The pool presented when hiring a NED is often very small.
Boards should be held publically accountable for ensuring a diverse and wide
pool of candidates for consideration and selection.
The Chair of the
Regulator (as above) by contrast said she had found it easy to find NEDs
willing to take on roles. However, she stressed their difficulty was in making
the right appointment, ensuring not just specialist skills were present but
complemented with a broader range of skills. She pointed out that if one was
to hire exclusively for expertise, say cyber risk, the board could become an
unwieldly collection of specialists, and thereby ineffective.
Challenging the audience to take a broader view, the NED of a financial
services firm pointed out that the skill requirements for NEDs evolve, yet
board members do not often receive formal training. Each business must
question what actions board members should take to improve their knowledge of
emerging influences and risks.
The NED of an AIM listed fintech
explained that FSA regulated businesses are very different as there is
personal wealth at risk. Therefore, the expectation around a board's
performance can be greater in financial services. Greater accountability drives
Stressing that the role of a non-executive is not
just a tick box exercise, the Chairman of a hotel group felt challengers on the
boards are often seen as trouble makers and organisations need to think
carefully about board's construct. He suggested that greater personal liability
might act as a positive stimulator.
A NED from financial services
expressed concerns that she finds the head-hunter selection process can be a
conversation, rather than assessment of skills. There seems to be a vast
difference in approach and not all interviews assess such traits as influencing
and the ability to affect change. It is critical the assessment of any NED is
not just a fire side chat.
How do we increase the
demographic of newer, more challenging NEDs with the right experience and
The Chairman of a transport company felt strongly that
businesses should develop their own executives who are on the path to becoming
NEDs. Individuals with critical expertise can offer benefits as a NED for
different organisations. In turn, as a NED they gain valuable experience and
bring back learning to their current employer as well as enhancing their own
capability as a NED for the future.
It is clear to all the modern
business world is changing at a ferocious pace. One is left pondering how it
is possible for current and future NEDs to ever be equipped for the challenges
of the near future.
In light of recent failures perhaps
it is also time to look at how boards are governed. Are they fit for
Should all boards review their contribution to the performance
of the businesses in a clearer way? Should board members be more incentivised
by the performance of the business, rather than time or role based fees?
Is governance overpowering the ability of the NED to get into the detail
and ask the difficult questions? Should the non-executive come under the same
KPI led scrutiny as the executives?
These are some of the many
questions raised at our lunch which we could have debated endlessly. However,
what is certain is: The profile and the behaviours of NEDs must evolve and
reflect the diverse demands placed on businesses in today's world.
Today's NED must constantly face new
digital age challenges and threats, which in many cases did not exist when
they themselves held executive board responsibility. The lack of experience
and knowledge gaps in technology related areas, such as cyber security, is now
evident. To respond to such challenges, today's NEDs must take steps to remain
up-to-date and relevant by acquiring the necessary knowledge. Importantly,
they should be encouraged and supported to do so.
Head-hunters must play
a more exacting role in not only challenging the type of NED a business says
it wants but in assessing them for the role and be as rigorous in their
approach as they would be for any CEO or executive.