A look at the role, responsibilities and benefits of NEDs
According to research by Henley Business School, Non-Executive Directors (NEDs) play a considerable role in business growth. But what is a Non-Executive Director? What do they do? And, what makes them instrumental for growth – especially for mid-market and SME companies?
Here are a few insights about NEDs, from their role and responsibilities to the benefits of appointing one. Plus, how BHP’s ‘Next Generation NEDs’ Development Programme is supporting both current and aspiring NEDs and Chairs to add value to ambitious companies and expand the NED talent pool.
Introduction to the role of the NED
The benefit of NEDs has long been understood by large companies and PLCs, but they can also play a crucial role in the success and growth of medium size and smaller businesses, with more of these companies than ever before now taking advantage of the value they provide. Wise counsel, previous experience of the growth journey, access to additional contacts, networks and expertise are just some of the benefits a NED can provide.
But what defines the role?
A Non-Executive Director is a member of a company’s Board of Directors but is not part of the executive team.
They act as independent, objective advisors to the company, providing experience and insight around strategic planning, high-level decision making, alternative perspectives, risk identification and oversight, as well as constructive challenge to the executive team. But they do not get involved in the day-to-day operations or management of the company and are sometimes known as ‘External Directors’ or ‘Independent Directors’.
Core responsibilities to note
It’s the responsibility of a Non-Executive Director to act in the long-term best interest of a company and its stakeholders, including not just other Directors but shareholders, employees and broader stakeholders. This can include having responsibilities in relation to ensuring there is no detrimental impact to communities or the environment where the company is based.
A NED will not work in a business full time. The minimum time commitment usually starts at two days per month, but for NEDs in medium size and smaller companies hungry for growth, it can often be more – or if the NED is also the Chair. It’s also important to note that NEDs are paid fees for their time and expertise. They are deemed to be ‘Officers’ of the company and are not employees, but as a member of the Board of the Directors, the role means NEDs have a responsibility for the success (or failure) of the business.
One other critical element aspiring NEDs need to be aware of is that their legal and fiduciary responsibilities are exactly the same as full-time Executive Directors. So it’s a considerable responsibility that requires much thought, due diligence and familiarisation with the company, its culture and ethics before an appointment is accepted.
NEDs are also expected to contribute to and support, as well as appropriately challenge, the direction and performance of the company to help it achieve its goals.
Other key responsibilities include providing guidance and counsel to the CEO, supporting the board, strategic planning, setting the culture and values of the business and ensuring appropriate governance is in place. As well as overseeing the activity of the executive team, and ensuring they meet their objectives.
What NEDs are expected to provide in mid-market/SME companies
In Henley Business School’s research, they found that the role of a NED and the skills required can vary considerably in growth companies. They found that the size, complexity, type of ownership and stage of development all have an influence on the type of NED that can enhance value.
High-growth companies, for example, may look to their NEDs to fill gaps in experience as they scale or provide knowledge or skills not yet contained in the executive team. Previous experience gained on the growth journey can enable NEDs to provide key insights into how to spot and exploit opportunities, avoid common pitfalls and risks, and how to ensure the internal operations and capacity of the business and its workforce keep up with expansion.
Mid-market or SME companies might also want a NED who can provide specific sector knowledge, expertise and contacts, or enable access to specific skills or knowledge in specialist areas, such as around regulatory matters, access to funding, governance or other developing agendas.
Invariably, a good NED will need to fulfil the role of trusted advisor and be an insightful and confidential sounding board. And, increasingly in high-growth companies, NEDs may also have a role in mentoring and developing other key senior executives to help build broader capacity and capability in the management team beyond the CEO.
The bottom line is that NEDs need to consistently challenge themselves to deliver for the company, and given not all companies need the same it’s important that the fit between company and NED is explored in depth before any appointment is considered or confirmed.
Benefits of appointing a NED
Many businesses appoint Non-Executive Directors to provide guidance, connections and a new perspective for the company.
With the experience of a successful senior career, or a track record of growing businesses behind them, a NED’s support and expertise can help companies crystallise their future ambitions and potential, help them develop the strategy and plans to get there, and keep them on track to achieve these goals. Their broader perspective and experience, independence, and ability to step back and objectively analyse critical issues enhances overall Board performance and decision-making, and maximises the potential for growth and long-term success.
Rachel Hannan is an experienced Chair and NED and Associate at BHP who delivers the firm’s NED Development Programme. Rachel says: “There can be misconceptions about NEDs, from people who think they’ll come in and take over on one hand, to the idea that they’ll just turn up for Board meetings and contribute little on the other. The true benefit of a NED is that they provide support but can also challenge the executive team’s thinking, bringing invaluable broader experience as well as alternative perspectives.
“Having been a business owner with a NED prior to starting my own portfolio career, I’ve first-hand experience of the benefits they bring. In most instances, it’s more than just a little black book, it’s the experiences that your non-executives have gained during their own career and the lessons they’ve learnt, which can be truly transformational.”
BHP’s Non-Executive Director Development Programme
As part of our ongoing ambition to support regional business growth, BHP has created a development programme for Non-Executive Directors and Chairs, as well as for those looking to start a portfolio career.
The programme is designed specifically for NEDs working with small and mid-market companies ambitious for growth. The two-day course helps prospective NEDs understand the requirements and responsibilities of the role, further develop the skills and approaches necessary to add real value, and understand the legal responsibilities that come with the position. It also offers more established NEDs and Chairs the opportunity to expand their network, refresh their knowledge and explore the evolving requirements of the role today.
Rachel Hannan explains: “The aim of our two-day course is to not only give experienced NEDs and potential NEDs the tools to help them in their non-executive career, but also create a community of non-executives who can support each other and the region’s fast-growing businesses.”
To find out more about the Non-Executive Director Development Programme, take a look at our brochure or contact Rachel Hannan on 07778 840724 or at rachel.hannan@bhp.co.uk.
