Bringing a non-executive director on board to advise your business can be one of the shrewdest hires you will make. But you need to manage the investment carefully to get the most out of it.

Recent research carried out by Speechly Bircham into the way smaller quoted companies on AIM and the main FTSE list worked with their non-execs found that even businesses such as these that are growing in the spotlight of a public listing – and subject to a strict code of conduct – are failing to do the basics with a resource that costs them an average of £60,000 per year.

You may pay yours less than this, and an initial public offering may not be on the horizon, but there are five key rules every business should stick to when working with non-execs.

Be clear about their role

A non-exec is there to help you make decisions that will build a focused, sustainable and profitable business. They will take the long view and bring a subjective perspective to the strategic decisions you make. There are times when you will like what they say and times when you won’t. Their job is to give you independent advice and judgment; your job is to listen.

Understand how pay affects performance

A non-exec with share options or a performance bonus will have a different perspective and agenda from one paid a flat fee. The codes governing non-execs in listed companies say you should steer away from performance-related pay. If you’re an unquoted business, you’re better off consulting an expert.

Don’t assume they know everything

Deep industry experience, a track record of working with growth businesses and good contacts or an ability to support fundraising activity are all common reasons for hiring a non-exec. But don’t expect them to do everything. Their job isn’t to be involved in the minutiae of the business or the detail of recent legislation.

Make sure you give them the information they need

Our research found a third of AIM non-execs weren’t getting the information they needed early enough before each board meeting. Whether you are listed on not, board meetings can only be effective places for decision making if the management team has read and digested the right information. Set a yearly schedule for your board meetings, with advance cut-off times for the board papers each month, and give your non-exec the opportunity to prepare.

Evaluate their performance

A key feature of listed companies’ codes of governance is that non-executive directors should be evaluated regularly on their performance. This is good advice for any business, quoted or private. Treat non-execs like each of your other employees. Set objectives and parameters for the role and review it regularly. If you don’t know what is working and what is not, you don’t know what to improve and what to fix.

Tom Shaw is a partner in Speechly Bircham’s Corporate Finance practice, specialising in corporate and commercial law and is head of Speechly’s quoted companies group. tom.shaw@speechlys.com For a free copy of the full survey, visit www.speechlys.com

 

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