An effective board and the role of an NED
A Non-Executive director has an intrinsic role in ensuring the effectiveness of a board; a board that leads the company purposefully and strategically. For an NED it’s important that they themselves have the knowledge to be able to provide insight and strategy to positively contribute.
In this series of articles we explore the role of an NED, the attributes needed and how you can gain your first NED position. For this third and final article we focus on the role of a Non-Executive Director on a board – and the attributes needed to be an effective business leader.
What makes an effective board?
The Financial Reporting Council sets out its definition of an effective board as one which ‘defines the company’s purpose and then sets a strategy to deliver it, underpinned by the values and behaviours that shape its culture and the way it conducts its business. It will be able to explain the main trends and factors affecting the long-term success and future viability of the company’.
Alongside the board members, the NED has a responsibility to ensure the sustainability of the company and that a long-term view is being taken. There are times where this may conflict with the shorter-term priorities of some investors, but they must guide the board to manage this conflict and ensure that shareholder and stakeholder interests are viewed and assessed though this long lens.
How an NED contributes to the board
Before an NED can contribute effectively – whether this is across their area of specialist knowledge, or more broadly across strategy, governance and risk and board performance – they need to obtain a full knowledge of the company and its operations. One of the most common criticisms of an NED is them not having this core knowledge – therefore they are limited to the extent in which they can constructively challenge and contribute to discussions on strategy, relying instead on explanations provided by others.
It is important for the NED, once appointed, to devote enough time to develop a good understanding of the business and its relationship with significant stakeholders. It is therefore advisable for the NED to take opportunities to meet shareholders, key customers and members of the workforce from all levels of the organisation and gain insights into the company culture.
An ongoing commitment
This involvement at all levels shouldn’t be limited to the initial induction program as we have discussed previously, but should be an on-going commitment from the NED. The NED must also be prepared for this time commitment to vary during their tenure. For example, during times of crisis, such as the Covid-19 pandemic, boards and CEOs have called upon their NEDs more frequently, as well as in areas outside of their functional expertise.
NEDs must also ensure that the CEO does not make decisions in isolation. This is particularly key if they are a major shareholder or have a dominant personality; it is important to ensure they are kept in check and the NED continues to guide, mentor and coach the CEO and Executive Directors.
Whichever development stage the company and board have reached, and whatever environment the business is operating within, it is important for both the board and the NED to constantly reflect on the learnings from each situation faced and ensure that all parties still have the skills required to support each other and the business during the next stage of evolution.
Do you have the attributes needed to help guide and support a board to reaching a new level? If you’d like to find out more about furthering your career as a Non-Executive Director then speak to our dedicated Executive division today.