Non-executive roles are as varied as the companies that hire them. They range from some gentle hands-off mentoring of a welcoming but experience-light CEO, through to full-scale involvement with an executive team inherently hostile to perceived interference by a dilettante old part-timer.
What nobody contemplating such a task should ever think is that “non-executive” means “non-risk”. The supposedly independent nature of the role provides no protection whatsoever when things go wrong.
Reputational damage, potential personal liabilities and disqualification proceedings rarely differentiate between executives and their non-executive colleagues. Candidates for a non-executive role would do well to pursue a number of simple risk mitigation strategies.
Two of them are essential precursors to accepting the role; the others need to be followed throughout involvement with the company.
Know everything about your company
Too often, potential non-executive directors limit their due diligence to a review of the latest couple of years’ accounts, a brief surf of the website and a relatively short and often relaxed interview process, involving the CEO and possibly the CFO, backed up by some general research into what the company does and its market. Pre-appointment digging needs to go much, much deeper.
Financial investigation should go back at least five years and must involve a close look at current management information. A detailed report from one of the major credit rating agencies is essential reading.
On people, the CVs of the whole board need checking out. Internal reporting structures will speak volumes about management style, not least as prior warning of excessive bureaucracy or rampant control-freakery. Sight of the past two years’ board minutes will also be informative.
Reputation is a harder research task. Discreet questioning of the relevant industry is a good starting place, but many modern businesses are only truly defined by their social media presence and behaviour.
Looking in detail at the company’s Twitter feed, Facebook page and any other social media activity is absolutely vital.
Know your role and then stick to it
The widely held notion of the non-executive as a bringer of wise words, a commercial door-opener and the credible voice of independence on key committees can be wildly misleading, particularly away from the rarefied world of FTSE 100 boardrooms and especially in private family companies.
The expectation is often that the non-executive will make a much more direct contribution; one which can and will be measured by the executive team, just like any other KPI.
It is vital for the precise role to be agreed and specified in detail at the outset, so that both the non-executive and the company can manage each other’s expectations. Once this has been done, mission creep must be avoided or the role formally varied to accommodate it.
Equally, non-executives must ensure that they are not treated as outsiders, or excluded from areas of activity, in a way that will restrict their ability to perform their role effectively.
Full management information
A common complaint from non-executives is a lack of access to comprehensive management information, either at all or not on a timely basis.
Getting two pages of summary data shoved in front of you as you sit down at a board meeting is hardly conducive to playing a meaningful role. It is difficult enough knowing what is going on in a company when you are not one of its 70-hours-a-week salary slaves, without allowing the executive team to get away with this.
Access to the appropriate data at least a reasonable time in advance of meetings should be written into the non-executive’s job specification and the person responsible for preparing board papers must be made aware of the requirement to provide them.
Any failures in this regard need to be brought up at the board meeting and recorded in the minutes. Failing this, the omission should be flagged up by email, copied to the rest of the board. A lack of knowledge and a failure to enquire are unlikely to be much of a defence in the face of awkward questions from a liquidator or an administrator if the worst happens.
Discussion and decisions
We live in an increasingly combative, fractious and litigious commercial world, where a casual approach to keeping a permanent record of actions and interactions is a highly dangerous way to do business.
Unfortunately, it is also a data-rich and time-poor environment, where it is all too easy to skimp on confirming conversations and minuting meetings amid the welter of emails, instant messages and tweets.
The importance for non-executives of insisting on thorough documentation is not confined to having a record for use in defending their actions and explaining the rationale behind decisions taken.
It is also an excellent discipline for doing business in an orderly and responsible manner. It spells out to their executive colleagues that the management team can and will be held accountable.
There are many aspects of the non-executive’s role that involve the potential for personal reputational damage; these strategies cover just some of the most obvious ways in which this risk can be managed.
The message for non-executives is to use every ounce of the nous and commercial savvy that won them the job in the first place—not just to help the company achieve its objectives, but also to make sure that they don’t end up standing on a burning platform fuelled by their own naivety.
Nick Hood is a chartered accountant, a former insolvency practitioner and a business risk adviser for Opus Business Services, business advisors and restructuring specialists.