Non-executive directors are a growing phenomenon for firms who need
to plug a short-term knowledge gap, writes Annie Gurton
IT managers might feel threatened if the rest of the board suggests
recruiting a non-executive director (Ned) with an IT background,
but an IT-Ned can be invaluable in supplementing in-house expertise
on a short-term basis.
Suppose your firm is thinking about developing itself as an
e-business but needs advice on deciding which servers and
applications it should choose which will be flexible and
interoperable enough to serve the company over the next 10
years.
You feel that outside consultants all have an axe to grind and
an agenda to swing. You can really only trust someone who has the
company's true interests at heart, but no-one in-house has the
background or experience to help make the right judgments and
decisions.
The answer is a temporary director, on the company payroll to
attend 12 or 15 times a year or more if there is a crisis. Because
their background is impeccable and they are on the company payroll,
and they don't represent anyone selling products, you feel able to
trust them.
They already have several years experience of electronic
business conversion and implementation, probably in a large global
enterprise, and they know what they are talking about. But they
only have a contract for a year or so, and by the time the firm has
become an e-enterprise you have learned all there is to know about
setting up and running the IT of an e-business.
Alternatively, if you are the IT manager in a small start-up
entrepreneurial company - and there are plenty of them in the IT
industry - chances are you need help in the wider matters connected
with running a successful business.
You'll be looking for someone who doesn't necessarily understand
about IT or know what constitutes a dotcom company but knows all
there is to know about cash flow, accounting, marketing, law or
human resources.
Or you may be an lowly IT manager in a large organisation where
IT is not represented on the board but there are some large
decisions looming about whether to become an e-business and develop
a Web-presence.
The board needs high level advice - probably reinforcing what
you are telling them - but for some reason they won't listen when
it comes from you. They need to hear it from another director. In
these situations, a Ned is the answer.
David Treadwell, a director of specialist Ned agency Hanson
Green, explains how it works. "The commitment is usually around 15
days a year, or more if there is a problem that needs resolving.
Otherwise, they attend board meetings and give the company their
commitment and the benefit of their years of experience.
"The remuneration is typically £1,500 per day plus expenses. In
the US, share options are also often part of the deal, but in the
UK there is the view that shares can have an impact on the value
and independence of their advice, so normally Neds don't get
shares."
Time limit
The trick, says Treadwell, is to limit the term of the non-exec
arrangement to a maximum of three years, or even have an agreement
that is renewed annually if the rest of the board thinks that the
Ned gives good value and advice and is worth retaining.
"Usually, the Ned transfers advice and experience, so that after
a while the company is able to manage without them. Also, the
situation which necessitated them in the first place has moved on
or changed, and they are no longer needed."
Does Treadwell think that an IT manager should feel threatened
by an IT Ned? "Not at all. They will be supplementing what the IT
manager knows and says.
"They will have more experience, but by the time the Ned
contract has finished all that expertise should have transferred to
the hosting firm. IT managers, even other IT directors, can only
benefit provided the IT Ned has been properly screened and
recruited, and is genuinely offering fresh skills or years of
experience that cannot be brought onboard any other way," Treadwell
says.
Non-IT Neds can be particularly useful. Lucy Marcus is managing
director of Marcus Venture Consulting and founder of High-Tech
Women. She sits on four boards, two as a non-exec, and she says,
"Neds can play an essential role in helping early-stage technology
companies and make a very real difference to the likelihood of
success of the business. Take a handful of entrepreneurial IT
people, and they need someone with real world business experience
to make their ideas work."
Marcus says the non-exec can also add the gravitas to a young
business, validating the business proposition to the outside world.
"Neds can do a lot to bridge the risk gap that exists between early
stage technology companies in a fast moving competitive atmosphere,
and success and longevity in the marketplace," she adds.
The key, according to Marcus, is to choose an Ned for diversity,
which might be different work experience to that already present on
the board, or different networks which can be accessed through the
Ned. "The Ned's diversity should reflect the diversity and
expertise that you'd like to build into your company as whole," she
explains.
It is essential that the Ned has experience at board level, and
if chosen well, can be invaluable in ensuring that the business
develops smoothly. "They can also help to mentor less experienced
board members so that the board becomes active and engaged as
quickly as possible," Marcus says.
Making contact
The problem of selecting a non-executive director is usually
that of making contact. A small start-up company must avoid high
recruitment costs, and short of personal recommendation, it can be
hard to make connections in the circle of the professional skill
required, whether financial, legal or IT. There is a conventional
image of Neds being drawn from the "great and the good" of
established high-profile senior managers, but often the best and
most committed are less well known, but have a wealth of personal
experience.
There are several agencies and marriage brokering services,
which list the names and skills of potential Neds. Companies
seeking an Ned can search the register for a relatively modest fee,
with an additional fee if a match is made and a placement
arranged.
That is how accountancy firm Kingston Smith runs GroNed, a list
of names which have been checked and scrutinised for their
qualities and experience.
Senior partner Martin Burchmore says, "We also always welcome
new candidates to join our list, for which there is no charge.
Any IT managers or directors who think they have the skills and
experience, can contact us for an application form."
Companies seeking Neds can simply search the list for a possible
match, or use Kingston Smith's consultancy services to help achieve
a most accurate match of skills required and Ned available. Another
similar marriage broking organisation is ProNed, recommended by the
Institue of Directors.
Pat Nelson, non-executive CEO for Pixelpark, says, "Neds can
offer a fast track way to get a growing company established.
Apart from experience, they bring a contact book which can be
worth its weight in gold. "Neds have to be accountable and be set
clear objectives," says Nelson, "and there needs to be someone else
on the board responsible for managing the Neds."
This in turn puts pressure on Neds who need to be able to
deliver. "The days of Neds just turning up a few days a year,
having lunch with the board and not doing much else have long
gone," says Nelson. "They need to be able to deliver."
No in-house manager or director should fear the appointment of a
non-exec. On the contrary, an IT manager should support and
encourage the board to appoint an IT-Ned to the board if there is
not one there already - it means that they are, at last, taking IT
seriously.
NEDs - the whys and the wherefores
- Deliver years of experience, for a measurable, containable cost
and in a finite timescale
- Be flexible about adapting mindset to match the changing
company and outside market requirements
- Give obvious advice unfazed by strong personalities on the
board
- Manage headstrong individuals
You should push for an Ned if:
- Your firm has specific high-skill requirements, or would
benefit from unbiased experience, for a short-term period
- You need an independent experienced view to balance in-house
weaknesses and lack of confidence in sales advisers
- You don't have the necessary skills or experience - in IT,
marketing, sales, finance, exports or business
development
Experience, advice and the weight to ensure answers
Sir Michael Bett is a chairman of several companies including
Pace Micro Technology and a non-executive director of other
enterprises, and was previously managing director of BT. He says,
"As a non-exec I offer a board and in-house IT managers a breadth
of experience that they can draw on as they need. I am not a threat
to them, but a resource they can draw on. I use my past experience
and knowledge and put it into a present context."
An experienced Ned, whether they are bringing IT skills or other
specialist or general skills, is able to ask all the right
questions, Bett says, and have the weight to make sure that they
are answered. "Business is about reading the market and the current
situation and digesting information and balancing it with past
experience," he says. "By asking challenging questions everyone
involved can get a better understanding of the company and its
situation. The Ned is able to ask things that the executive board
may not feel able to ask, or has not considered. The Ned makes sure
that they cover all the angles."
Bett emphasises the need to get the right person in the right
company. He says, "The Ned must demonstrate clear thought
processes, good communication and interpersonal skills, integrity
and independence, and the ability to respond and react quickly when
their expertise is needed. They will be called upon to provide
clarity and advice, and they must be able to impart that along with
clear honest views on a situation."
If necessary, he adds, they should be able to question the
direction of the company as well as provide specific advice where
it is needed.