How To… Be an Effective Non-Executive Director

This month’s blog is part of The Governor’s ‘How To Series’ The series covers a range of topics which offer in brief practical guidance on some of the issues that I normally explore from a more theoretical perspective. In doing so, I hope to ensure that my blogs don’t just keep you up to date with what is happening within the governance as a whole, but will also assist you in becoming a competent, confident and effective governance practitioner.

It’s been 13 years since the publication of the Higgs Review which examined the role of a non-executive director (NED) on the board. With boards now having to consider more than traditional compliance, stewardship and strategic functions, the role of the NED is even more critical.

Board members should be considering Emergent Strategy, Generative Governance and Adaptive Leadership in a terrain that is volatile, uncertain and complex. The role of a NED is both challenging and demanding.

 

A NED must have integrity and high ethical standards and independent NEDs bring an essential element to the boardroom. A major contribution is the wider experience and fresh perspective that they may bring. Boards are further strengthened by having NEDs who have no other connection with the company who can be objective which is something connected parties are not easily able to. A diverse board will undoubtedly be better equipped to constructively challenge and help develop strategy.

 

Higgs wrote that NEDs need to be sound in judgement and to have an inquiring mind. He stated that they should: “… question intelligently, debate constructively, challenge rigourously and decide dispassionately. And they should listen to sensitively to the views of others inside and outside the board.”

 

Usefully, I have an acronym to remind you of the areas which outline the role of an NED. Four of them were specifically identified in the Higgs Review and now feature in the UK Corporate Governance Code. I have added Ambassador and Evaluation to the four as you will see below. The acronym is SPARSE and is explained here:

 

Strategic – Help contribute and develop proposals on strategy,

People – Determine appropriate levels of remuneration. Have a primary role in appointing and removing executive directors,

Ambassadorial – Maintain dialogue with stakeholders,

Risk – Ensure financial informational is accurate and financial control systems, risk management are robust and defensible,

Scrutiny – Review the performance of management in meeting objectives,

Evaluation – Undertake formal and rigorous evaluation of own performance and that of the board and committees.

 

In addition to being SPARSE NEDs skills should include:

  1. Monitoring – a NED is required to contribute to the monitoring of objectives of the organisation, including KPIs and it’s performance against the stated vision and mission.
  2. Questioning – a NED should ask questions of the executive to clarify and to bring challenge in a way that promotes the achievement of successful outcomes.
  3. Interrogating – a NED should seek to interrogate the information provided to them to ensure transparency, probity and risk implications.
  4. Influencing – a NED should seek to positively influence decision-making processes that promote the long-term success of the company or organisation.
  5. Probing – a NED should ask probing questions which ensure the company acquiring Value For Money, Corporate Integrity and meeting the requirements of regulatory bodies and following the law.
  6. Listening – a NED should be a support mechanism for the executive, always listening to concerns raised and offering solutions to improve outcomes. They should also listen to the views of stakeholders and integrate these into decision-making processes.
  7. Being Adaptive – a NED should be able to move with the changing pace of an organisation and represent the wider interests of all stakeholders.

 

So there we have it… ‘How To… ‘ Understand the Role of the NED!

Until next time…