Like Lloyd’s Names during the bad old days, non-executive directors have traditionally been seen as either mates of the chairman or key shareholders, titled duffers invited in to bring respectability to the company letterhead or placemen -designed to give the executives an easy ride.
According to a global survey of 4,000 boards conducted by Cranfield professor (and CFOWorld.co.uk blogger) Andrew Kakabadse, the underlying problem of under-performing NEDs is still rife. In Britain, for example, 85 percent of directors could not determine why some of their colleagues were on the board, and Kakabadse’s findings show a majority of NEDs couldn’t even describe their company’s competitive advantage.
But two decades of corporate- gov-ernance reforms have placed stiffer -res-ponsibilities on non-executives and put them in the firing line when things go wrong. Which begs the questions: why bother with them, and why would any CFO want to be one?
How the role has changed
“The difference today is that NEDs are not just plants for the boardroom that need to be fed and watered,” says Eric Tracey, former partner at Deloitte, troubleshooting CFO and now a non-executive director on three boards.
“It’s a serious job now – especially if they’re chairs of RemCos [remuneration committees] or the audit committee.”
In the UK, one reason for this change was to counter over-powerful executives who’d caused some of the country’s highest-profile corporate disasters. For example, the Cadbury Report on governance was triggered by the failings of his board to rein in Robert Maxwell, and included stipulations about the number and independence of NEDs.
Aside from a host of other rules – such as the splitting up of CEO and chairman roles – one big change has been the number of roles a NED can take on without raising eyebrows. Even without a full-time executive role in play, the new rules make it harder for non-execs to ‘go plural’ and take on a hatful of NED positions.
“Even as a consultant, seeing a client one or two days a month makes it hard to keep track of what’s going on,” says Paul Hinder, self-styled ‘non-exec CFO’ who’s involved with several firms as adviser or chairman. “More than half a dozen, and you’re not -going to be able to keep track of who’s doing what and how you’re making a difference.”
Tracey points out that while steady-state NED-ship is relatively straightforward, you need to be ready for change. “As soon as something happens – a problem with the accounts, a solvency issue, a takeover bid – it quickly becomes a full-time job,” he says.
“OK, those situations won’t happen to most people – but they might. And if they do, you have to be available at short notice, usually for quite intense decision-making.”