Add weight to your board

Feature

Add weight to your board

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.


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    This was first published in May 2000

     

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