The financial crisis and the “shareholder spring” have highlighted the need for companies to have more effective Non-Executive Directors who will spend much more time on their Non Exec responsibilities than they used to; this requires them to have far fewer roles as it is a much more demanding brief than it used to be.
Recent events highlight these trends, with the “shareholder spring” demonstrating the increasing focus on stewardship by investors and confirming the crucial importance of the role of Non Execs and the continuing evolution of the role.
Boards (and the major Search firms) are slowly realising that the traditional old fashioned “generic” Non-Execs are not providing what their Boards require of them. Many companies are still appointing more of the same: male, pale & stale Non Execs with little or no diversity. There is a growing need to introduce a variety of types of Non Exec with diversity but not just gender, also background, ethnicity, experience etc and most importantly Non Execs who are truly independent and have outside objectivity. The demands on Non Execs in areas such as risk, finance and technology are far greater than they used to be and it is clear that the days of the gifted amateur Non Exec are gone.
KPMG say they see a noticeable fall-off of performance on the 3rd and subsequent role for Non Execs but unfortunately we are still seeing many Non Execs with far too many roles – 10% of Non Execs in the UK have 10 roles or more making it nigh on impossible for them to contribute effectively to the Boards they sit on. The recent resignation of Non Exec Alison Carnwath from the Barclays Board is an interesting example; she said she was resigning because she didn’t have sufficient time as she has 8 top line Non Exec roles; this is good enough reason to resign but more importantly begs the question why she took on so many roles in the first place and why did some of the companies take her on knowing that she had so many other commitments? It is high time companies, their Search firms and the Non Execs themselves realised that 3-4 Non Exec roles for major companies are now the maximum that they can have and be truly effective; sadly we still see evidence that this is not yet the case.
The Walker report recommends that Non Execs should not have more than five roles and First Flight does not put forward Non Execs who have more than 4 roles; however we meet clients who are attracted to Non Execs who have multiple roles on the basis that they “must be good” but we try and explain that such Non Execs are unlikely to add value to their Board.
Baroness Howe recently said: “I would limit the number of Non-Executive positions that can be held by any individual at one time. If there’s a crisis you need to drop everything and focus on sorting out the situation. But you can’t do this if you owe multiple boards your time.” First Flight strongly endorses Baroness Howe’s comment.
The demands on Non Execs are significantly greater than they used to be and this therefore requires that they have far fewer roles that they used to. Less roles per Non Exec necessitates a broadening of the Non Exec gene pool which First Flight is a keen advocate of, and we are starting to see major Search firms being forced to look at potential Non Exec candidates outside of their existing network – this is long overdue and will help professionalise the role of the Non Exec as well as create more diversity in the Board room. First Flight talk to many candidates who have major potential as Non Execs and who tell us that they have been to major Search Firms only to be told: “we can’t put you forward for Non Exec roles if you haven’t been a Non Exec” – urgent changes of attitude and approach are required and firms must stop asking; “who do we want on our Board?” instead they should be asking: “what skills do we need on our Board to compliment the skills we already have and bring in the skills that we don’t have?”
Non Execs must possess a strong level of commitment and corresponding work ethic. They need to prepare thoroughly for and attend all Board and Committee meetings; but more is required of them: they should attend major corporate events, get to know senior management and they might mentor up-and-coming executives. Non Execs should also visit different company site(s). However if they choose to do less than they’re asked by not attending meetings &/or not reading Board papers, then the Board’s effectiveness will be compromised. It should be the responsibility of both the Chairman and CoSec to monitor not only the contribution and performance but the attendance record of Non Execs at Board Meetings.
First Flight has never been an advocate of what we describe as old fashioned “generic” Non Execs, we strongly believe in broadening the Non Exec gene pool which helps to provide more committed and effective Non-Executive Directors who have sufficient time to fully understand the company’s business and who provide diversity and really add value to their Boards.
In addition to providing more effective Non Execs, First Flight’s fees are more realistic based on a more efficient business model – the best of both worlds!
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