The Ideal Board
Independent Non Execs
Non-Execs For AIM Companies
Non Execs For Young Companies
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AIM is a Listed market for small and medium sized growth companies, established in June 1995 as part of the London Stock Exchange. It is a geographically and sector-diverse market, with companies operating in over 100 countries, representing 40 different sectors ranging from financial services firms to healthcare and technology companies.
AIM and FTSE Small Cap Listed Company Recruitment
First Flight has recently become a preferred partner of the London Stock Exchange Issuer Services Marketplace as a provider of Chairs, Non-Execs & Advisory Boards to smaller quoted companies on the Main Market & AIM.
Being an AIM listed search & selection company means we have a particular focus working with AIM & FTSE Small Cap Clients; we are the only Search firm that works with the LSE.
The LSE listing rules changed in September 2018 and one new requirement is for all AIM Companies to comply with a Code: either the UK Corporate Governance Code or the Quoted Company Alliance Code.
The Quoted Company Alliance (QCA) Code has ten principles of good Governance: For companies to deliver growth in long-term shareholder value, requires an efficient and dynamic management framework and should be accompanied by good communication which helps to promote confidence and trust.
- The Board should have an appropriate balance between Executive and Non-Executive Directors and should have at least two Independent Non-Executive Directors.
- The Board should ensure that between them the Directors have the necessary up-to-date experience skills and capabilities to operate effectively;
- The Board should understand and challenge its own diversity including gender as part of its composition.
A Non-Executive Director who becomes involved with a company early enough in the IPO process can have a significant impac on the IPO success.
Non Execs for AIM Companies
As an AIM Board Non-Exec search agency First Flight is passionate about helping AIM Companies strengthen their Boards by providing high calibre, commercial Non-Execs who can really add value to the business.
We strike the right balance with our candidates between good Governance and strong entrepreneurial experience particularly relevant for AIM and we currently run at around 35% Women Non Exec placements.
We work with our AIM clients to assess what skills and personalities their Boards will benefit from, we focus our search for our clients on the key or specific skills you require from your Non-Exec(s) along with our experience of understanding the importance of diversity, not only skills and gender but culture and fit for your Board. We have a clear view of how to build ‘the ideal Board’ and how to achieve this successfully.
We know that the appointment of the right Non-Exec is crucial to the effectiveness of your Board and selecting the right Non-Execs has never been more vital to the success of your business and the support of shareholders.
What sets First Flight apart from other search firms is our understanding of Board dynamics and having the broadest reach of any search firm to identify the right Chairs and Non-Execs.
First Flight specialises in providing clients with Chairs, Non-Execs, Advisory Board Members and Trustees. We have proven our ability to come up with high impact candidates that other search firms are unable to locate. We are function specialists. Our ability to come up with outstanding long lists for our clients using our methodology to build an outstanding reputation as a leading Non-Exec Search firm. These are the sectors where First Flight have had the most significant experience:
IT/Tech
Manufacturing / Engineering
Financial Services
Not For Profit / Public Sector
Professional Services
Property
First Flight’s Board review is the most effective means for identifying areas for improving performance within a Board. Competency frameworks are used to identify Director skills, mind-set and diversity issues, and ensure current Directors are being properly utilised. Leading practice recommends that a Board review should involve the Board as a whole, but also review the contribution of individual Directors through an externally facilitated process of evaluation.
The objective of good Corporate Governance is to facilitate, effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
How can the Competency Framework be applied to my organisation?
The framework provides a measurable and achievable guide to the knowledge, skills and mind-set required for Directors to perform effectively and to successfully lead your organisation whatever your sector, industry or location.
A Board review will assess how a Board is performing and as an overview can:
- Identify areas for Board improvement and identify gaps
- Enable more effective group dynamics within the Boardroom
- Provide a check on progress against the organisation’s mission and objectives
- Provide benchmarks for measuring Board Performance in the coming year
The Competency Framework is built around three dimensions:
1) Knowledge – Director understanding and appropriate application of essential practical and theoretical information; eg strategy, operations, entrepreneurial & finance.
2) Skills – expertise that Directors bring to the Board; eg Corporate Governance, digital/E-Commerce, analytical skills, legal, HR etc
3) Mind-set – attitude and disposition that shapes a Director’s responses, behaviour and contribution; eg independence, ethics, prepares well etc
Within each of the three dimensions Knowledge, Skills and Mind-Set we review a set of core competencies and actionable standards enabling us to assess the strengths and weaknesses of Directors, identify areas for performance improvement and plan for development and succession planning.
Achieving the “Ideal Board”
The Board should debate and agree the best strategy for the company and set itself regular performance objectives and regularly review its achievement against the objectives it sets.
The ideal Board should be both entrepreneurial and deliver robust and effective risk management. Possess a diversity of skills, personalities, age, gender and knowledge to ensure it can debate healthily and deliver against future strategies.
Appointing Non-Executive Directors is an ideal way to address skills and/or diversity and independence issues that the Board may not currently have.
For more information please email This email address is being protected from spambots. You need JavaScript enabled to view it.
1. The role of the Chair in a nutshell:
Good Boards are created by good Chairs. The Chair creates the conditions for effective Boards and the effectiveness of individual Directors including the Non-Executive Directors (NEDs).
The UK Corporate Governance Code states: “The Chair leads the Board and is responsible for its overall effectiveness in directing the company. He/she should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the Chair facilitates constructive Board relations and the effective contribution of all Non-Executive Directors, and ensures that Directors receive accurate, timely and clear information.”
2. The essential role of a Chair are:
- The Chair should be independent on appointment.
- The Chair is responsible for clear leadership of the Board, ensuring its effectiveness in all aspects including that it functions effectively.
- The roles of the Chair and CEO should not be exercised by the same individual.
- The CEO should not become Chair of the same company. If exceptionally, this is proposed by the Board, major shareholders should be consulted ahead of the appointment.
- To have adequate separation from the day-to-day business, to be able to make independent decisions.
- Not to remain in post beyond nine years.
- To use open advertising and/or an external Search consultancy for the appointment of a new Chair.
- The Chair is responsible for setting the Board Agenda and ensuring that Directors receive accurate, timely and clear information. The Board pack should be primarily focused on the key issues such as strategy, operational performance, the finances and company values (culture). The Chair must ensure a high-quality Board Pack with strong use of executive summaries is distributed well ahead of Board Meetings.
- To conduct Board meetings effectively getting all Directors including the NEDs involved in the Board’s work and ensuring the Board focuses on its key tasks. They should not be long drawn-out affairs which waste time and sap energy. Short meetings with a focus on key strategic and Governance issues are the ones which work best.
- To demonstrate the highest standards of integrity and probity, and set clear expectations concerning the company’s culture, values and behaviours, and the style and tone of Board discussions.
- To take responsibility for the Board’s composition, development and succession planning.
- To ensure strong ethics, good corporate culture and that the Board sets the example for the whole organisation in terms of behaviours, ethics and values.
- The Chair of each Board Sub-Committee (Audit, Risk, Remuneration, Nomination, Corporate Social Responsibility etc) should ideally be a Non-Executive Director rather than the company’s Chair.
- The Chair can be an Executive (full time) Chair or a Non-Executive (part time) Chair.
- Not have more than two Chair roles.
3. What makes an effective Chair?
Being a good Chair requires considerable skills including:
- Creating the right Board ‘dynamic’ and ‘culture’ - just how open to constructive challenge and debate are we? Is everyone heard? How far down is visible? It is all about team dynamics and harmony but not overly cosy.
- Contributing to and challenging the company’s strategy.
- Striking the right balance of confidence and humility.
- Constructively challenging and providing strong levels of oversight of the CEO and Executive team performance.
- Being happy for others to take the credit.
- Putting the company’s interest ahead of everything else.
- An innate ability to “do unto others as you would have done unto you” as productive business is all about relationships.
- An independent Chair is fundamental as a counterweight to a strong-willed or overly dominant CEO.
- A poor or weak Chair will result in poor leadership of the Board and can come about through:
- Not being involved enough in the business &/or being too busy on other commitments
- Being too domineering, arrogant or unapproachable.
- An inability to lead the Board in reaching major decisions.
- Poor communication skills.
- The Non-Executive Directors, led by the Senior Independent Director, should be responsible for evaluating the performance of the Chair, as part of the annual Board Evaluation.
- An effective Chair is essential for a company to be effective - the fish rots from the head.
The principal considerations of the Board Chair role are clear...the difficulty is putting them into practice!
Areas where Boards are not working well are generally due to a lack of trust and respect plus either the wrong or ineffective Chair &/or Non Execs.
4. The Chair should:
- Display strong leadership, ensuring a clear vision and focus on strategy for the organisation using the expertise and input of all Board members.
- Act as a buffer between the CEO and other Board members as well as investors and external shareholders. For this reason, it is important that the Chair is truly independent and not inappropriately aligned to the CEO.
- Have the ability to effectively listen to and support the CEO and not constantly second-guess him/her or try to run the company which is the CEO’s job.
- Ensure that the Non Execs are truly independent so that they can function and challenge effectively.
- Promote a culture of openness and debate by facilitating the effective contribution of all Directors including the Non Execs.
- Ensure constructive relations between Executives and Non Execs.
- Ensure effective communication with shareholders and other stakeholders.
- Hold periodic meetings with the Non-Executive Directors without the executives present.
- Prepare a Corporate Governance statement which should articulate the Chair’s role.
- Ensure that new Directors receive a full, formal and tailored induction on joining the Board.
- Understand the business through a deep commitment of time and energy to the Board and company.
- Be a good listener as well as something of a diplomat if the going gets tough. A good Chair keeps Board Meetings short and to the point.
- Carry out regular Board Evaluations or Reviews either internally or externally and act on its recommendations; smaller companies should consider mini internal Evaluations.
Summary
Good Boards are created by good Chairs and a good Chair is crucial to the effective running of the Board. An effective Board is in turn crucial to the success of the company.
The Chair creates the conditions for effective Boards and the effectiveness of individual Directors. It is the responsibility of the Chair to lead the Board - the CEO leads the company.
The Chair should provide strong but not dominant leadership, whilst encouraging all Board members to contribute and robustly debate all key issues. He/she must ensure the effective implementation of Board decisions.
Written by Chris Spencer-Phillips, Managing DirectorFirst Flight Non-Executive Directors LtdApril 2020Different types of companies have different types of Boards and successful AIM companies judged by financial performance and with good relations with shareholders usually have one thing in common – they have effective, diverse, entrepreneurial Boards with a number of truly independent Non-Executive Directors who bring diversity and specific skills to the Board. These Non Execs will genuinely question and challenge the Executive but act in a supportive way. If the Non Execs have the right skills and experience they will not let the Execs make bad decisions or get away with remuneration agreements which are out of kilter with the size of the company.
Shareholders in AIM companies, whether institutional or individuals have become more and more conscious of the need to have effective Non Execs and the potential dangers of investing in companies who don’t have truly independent and effective Non Execs.
Some AIM companies have “obtained” their Non Execs from their Nominated Advisor (NOMAD) or Broker but these Non Execs are not chosen from a targetted long-list and seldom appointed for their specific skills and sometomes have too many roles to be effective (over-Boarded). The pool of Non Execs that NOMADs and Brokers have historically worked with has become limited. For example if the business is a technology one then the Non Execs will need to understand technology otherwise they will be “fringe” Directors and unable to add value.
The London Stock Exchange (LSE) changed the rules for AIM Companies in September 2018 which has changed the Governance landscape who now have to "comply or explain" with a recognised Governance Code. The two codes are The UK Corporate Governance Code (with its 45 or so provisions) or the Quoted Company Alliance (QCA) Code with its ten provisions. This has increased the demand in AIM COmpanies for Board Reviews, diversity on Boards and truly Independent Non Execs..One of the most crucial is that the Non Execs should be truly independent.
In 2018 First Flight became a preferred partner of the London Stock Exchange as a provider of Chairs, Non Execs & Advisory Boards to smaller quoted companies on the Main Market & AIM companies:
With a large number of AIM Clients First Flight have become a specialist Search firm for AIM companies with a process ensures that the best Non Execs are “identified” through a formal, rigorous and transparent process which will identify a wide choice of suitable candidates who have specific skills rather that an arbitrary act or the appointment of a “friend” or colleague.
All Non Execs should sit on a Sub-Committee – which includes Audit, Risk, Nomination and Remuneration and sometimes specialist Sub-Committees such as Consumer or Technology.
Who better to summarise the need to find the “right” Non Execs than Warren Buffett who says: “It is desirable for Boards to have “Outside” Directors (as he calls them) but they must:
- think and speak independently
- be business-savvy
- be genuinely interested in the company and care deeply
- be shareholder orientated
- bring useful & specific qualities to the Board
too often Outside Directors are selected simply because they are “prominent people” – this is a mistake” he concludes.
First Flight works with a number of AIM companies (and pre IPO Companies) and understands the dynamics of effective Boards and the benefits of appointing the right Non Execs.
- Canonical URL: https://firstflightnonexec.com/why-first-flight/about-us
Introduction to First Flight
First Flight is a specialist Chair and Non-Executive Director search firm founded in 2004.
We are the only UK search firm focusing solely on providing Chairs and Non Execs, Trustees and Advisory Board Members.
Every search we manage is carefully tailored with a focus on independence, diversity, quality and effectiveness.
Our clients include: FTSE, AIM, Investment Trusts, growth companies, PE Backed, family businesses, not-for-profits and charities.
We know that the appointment of the right Chair and Non Exec is crucial to the effectiveness of a Board and selecting the right candidates has never been more vital to the success of an organisation – not just a good candidate but the best candidate.
What sets First Flight apart from other Search firms is our understanding of Board dynamics and achieving a high success rate providing diverse candidates – skills, gender, age and ethnicity.
First Flight are AIM Specialists
We have many AIM Clients such as Trackwise, ZOO Digital, Angle, Ceres Power, Cambridge Cognition, Ideagen, Proactis, Pressure Technology and understand the challenges that AIM companies face between being entrepreneurial and ensuring good Governance, helping strike the right balance to achieve this when selecting candidates for Non Exec roles.
We are fully conversant with both the UK Corporate Governance Code and the Quoted Company Alliance (QCA) Code.
First Flight Services include:
- Chair, Non Execs, Advisory Board Members and Trustee Search
- Non-Executive Director Remuneration Advice
- Advice on Board make-up including Non-Exec Skills Audit
- Board Succession Planning
- We partner with a company specialising in Board Reviews which is often the precursor of a Board refresh
Financial Services
We have worked with many Financial Services clients such as Weatherbys Bank, British Friendly Society, Cirencester Friendly Society, Institute and Faculty of Actuaries, Invesco Perpetual and understand the regulatory issues of the FS sector.
whether you need one, are one, or want to be one
- Canonical URL: https://firstflightnonexec.com/why-first-flight/our-mission
Mission Statement
As the first specialist UK Chair & Non Exec Search firm, First Flight has and continues to help raise the standards and effectiveness of UK Chairs and Non-Executive Directors. We aim to continue to broaden the Non-Exec gene pool and provide more diverse Candidates.
Our Services
- Chair, Non-Executive Director, Trustee and Advisory Board Search
- Chair and Non-Executive Director Remuneration Advice
- Board Dynamics Advice
- Non Exec Skills Audit
- Non Exec Cadidate Mapping
Non-Executive Directors (NEDs) are appointed to provide companies with advice and support. They are appointed to tactfully contest strategies to glean the best results from management for business. The role is often challenging and requires the individual to be equipped with specific knowledge and expertise, confidence and analytical skills, whilst maintaining an external and objective viewpoint in order to contribute to an effective Board.
Legally, there is no distinction between Executive and Non-Executive Directors and, for this reason, the UK unitary Board structure concludes that NEDs share the same responsibilities, legal duties, and potential risks as their Executive colleagues. It is common knowledge that Non-Executive Directors cannot deliver the equivalent seamless attention to the business, as they are not, or at least should not be, involved in detail. However it is essential that they share the same drive for success as their Executive associates.
Accountabilities and Responsibilities
Non Executive Director Responsibilities
In terms of key responsibilities, NEDs should be regarded as leadership contributors. Chairmen and Chief Executives should harness their Non-Executive Directors to provide general counsel and seek their guidance on particular issues before they are raised in Board meetings. A Non-Executive Director is appointed to benefit the development of business strategy and effectively challenge strategic plans made by management. The independent viewpoint that the NED maintains (away from the day-to-day activities of company management) allows for better focus upon challenging and revising company strategy and maintaining objectives.
Risk Management Process
In another light, NEDs are expected to ensure appropriate risk management schemes are in place and guarantee internal control frameworks are implemented regarding all characteristics of the business. One of these features for the NED is filling key business leadership positions within the company through successful succession planning.
Performance Monitoring
NED Directors should also take responsibility for monitoring the performance of Executive management and, in some cases, mentoring them - especially in regards to the progress made towards achieving the company strategy and objectives. The Non-Executive Director must also ensure that KPIs are met by the management team and involve themselves heavily in problem solving, financial queries, audits, and measurement activities.
Professional Networking
Furthermore, the unique contacts that the NED can bring to the table is a clear indication that outside sources can be a benefit to business. Broadening professional networks can help bring useful individuals and organisations on Board to strengthen business and the NED will also be called upon to represent the company externally and aid the Board in keeping stakeholders, customers, shareholders and third parties informed appropriately.
Business Challenges
As well as germinating strong communication ties between the company and outside sources, Non-Executive Directors should involve themselves with any company difficulties, such as trading troubles through changes in the market or ineffective governance and management. The NED should ensure the reliability of financial information that they are provided with and that the company publishes and also ensure that financial controls and risk management systems are strong and secure.
Personal Skills
A NED works in an advisory capacity only and is therefore expected to be truly independent, as an individual with no links to the company so that their perspective is not tainted. However, the Non-Executive Director does not have to work in isolation; discussions are encouraged, but it is imperative any decisions made are solely that of the NED. Having a strong and persistent character is ideal for these situations, and the ability to voice “no” decisions, tactfully deliver criticisms and command attention from a Board are key attributes.
Management Induction Programme
For the above reasons, it is essential that newly appointed Non-Executive Directors receive a full induction to the company (and continuing development) to understand the business fully. Tours, liaising with key managers, assessing competitors and understanding USPs, are all important ways for NEDs to contribute and assimilate into the company effectively.
Duties
The Companies Act in 2006 is the main piece of legislation which governs company law in the UK and has a number of statutory duties applied to all Directors irrespective of company size or Executive or Non-Executive standing.
Directors Duties
• A Director must act in accordance with the company’s constitution and only exercise powers for the purpose which they are conferred.
• Act in good faith, with regard to likely consequences of any decision in the long term; the interests of employees, community and the environment; and the desirability of the company maintaining a reputation for high standards of business conduct.
• Exercise independent judgement
• Exercise the care, skill and diligence of a ‘reasonably diligent person’.
• Avoid situations of direct or indirect interest that conflicts the interests of the company; these should be managed and declared,
• Must not accept any benefit from a third party which may cause conflict of interest (scale of benefit is critical, for example; lunch may be fine whereas a holiday is not).
• Must declare the nature and extent of any personal interest in a proposed transaction with the company to the other Directors before the company enters into transaction
However, these are not the only considerations for Non-Executive and Executive Directors alike, other duties a Director should consider include:
• Duty of confidentiality
• Duty to devote sufficient time and attention
• Duty to account to shareholders
• Duty not to make ‘secret profits’
• Stewardship of the company assets
• A general duty to act in good faith
• Duty to file accounts, annual returns, and tax returns
• Duty to maintain statutory books
• Duty to ensure the company is complying with legislation including, in particular, those involving risk to third parties, for example, health and safety at work
Skills of a Non Executive Director
The skills of a Non Exec will vary from appointment to appointment but a Board should aim to have a balance of skills and experience that is appropriate for the size and requirements of business. Skill gaps can be identified by Board members and filled appropriately by appointing new Non-Executive Directors. The Board want to ensure the success of the company and therefore, it is of high importance that varied skill sets of Non-Executive Directors are valued.
The business issues of a company should be focused upon by all Directors; with a broad perspective. The benefit of NEDs is that they can be of a high level of professional competence and can bring a wide array of experience and personal attributes to the table. Furthermore, many Non-Executive Directors are armed with varying degrees of specialist knowledge that can help deliver prized perceptions to the Board or offer key contacts.
Board Objectives
Most valued, is Non Execs ability to stand apart from the management of the company; this ensures objectivity to the decisions and dilemmas facing the Board and provides a key role in the monitoring of Executive management.
NEDs should be astute to Board matters and are expected not to stray into providing Executive direction; enabling an unbiased view of the company as the individual is not cohesive with the day-to-day running of the business. Non-Executive Directors are expected to bring not only personal attributes and professional knowledge to the table, but also draw on their wide professional experience and perform with independence and impartiality.
Non Executive Director and Board Structure
Balanced Board of Directors
Achieving a Balanced Board of Directors is a challenging but rewarding task for business. The Matrix, shown below, suggests four areas of expertise to address when businesses look to create an effective Board.
The polar opposites are: strategy ‹ › operations and drive ‹ › monitor
First Flight recommends Boards should have at least one, ideally two Directors with each of these four core skills:
• Strategic - the big picture looking to challenge and shape the future;
• Operational – the detail looking to make sure actions and plans are consistent with the strategy and will deliver the required performance;
• Drive – the accelerator and entrepreneurial abilities to drive the organisation forward and overcome obstacles;
• Monitoring Risk – the brake and Governance to be able to identify risk areas and issues and stop the organisation doing the wrong things.
These four areas reflect four separate and independent dimensions of Board dynamics which form two opposing pairs in terms of interaction: strategy (the big picture) ‹ › operations (the detail) and drive (the accelerator) ‹ › monitor (the brake) and each of these core skills should be provided to the Board by its Directors. Boards that are well represented with each of these skills will be more effective.
An example of one side pulling too hard in a direction with drastic consequences is in the banking sector, and that error was a catalyst for the Banking Crisis experienced in the late noughties.
Initially, the Boards of Banks were too heavily weighted on the ‘Monitor’ side of the Matrix, meaning that these boards were placing too much emphasis on risk averse strategies with board members from finance, regulatory and Corporate Governance backgrounds helping to make those decisions.
The Boards of Banks realised that this situation had occurred and as a method to rectify the risk adverse model they had been following, they introduced more ‘Drive’ into their Boards however, they did not find an appropriate balance and over-skewed in Drive’s favour. This resulted in the Boards of Banks and Banking sector becoming cavalier and overly entrepreneurial in their approach to business.
As we have the benefit of hindsight, we now know that the Banking sectors’ cavalier approach was doomed, being responsible for the years of reverberating damage caused to our economy.
Consequences of Groupthink
The impact of the over-zealous, skewed weight of Bank’s Boards was clear for all to see in the years that followed and acts as a fantastic example of ‘Groupthink’.
Groupthink is a term used to describe a psychological phenomenon that occurs within a group of people responsible for decision making. The situation is not appropriately or in most cases, logically dealt with as a result of the desire for harmony and conformity within the group of decision makers. In a method to reduce confliction between the group of decision makers, a decision is reached that may actually be irrational when considered outside of the decision making situation (most usually, where it will have the largest impact).
This phenomenon is more likely to become a factor within unbalanced, skewed Boards which is a great protagonist for the creation of a Balanced Board of Directors. As balanced Boards will provide voices, opinions from the different ‘sides’ and angles of the business it can be assumed that these sides would not necessarily agree on decision making but instead find a comprisable agreement between each ‘side’ to form a decision that takes into account each of those ‘sides’ viewpoint and will result in better, balanced decision making that considers all aspects of a business and the impact of those decisions on stakeholders.
Other famous examples of Groupthink that caused devastating consequences include; the attack on Pearl Harbour, escalation of the Vietnam War and most recently, the invasions on Afghanistan and Iraq on claims of Weapons of Mass Destruction.
Changing face of Non Executive Director
Although the four skills outlined in the above matrixes are essential core capabilities that appear in the majority of Non Exec job specifications, skills are evolving and digital communications, HR and legal are being added to the operations quadrant.
A recent survey of FTSE companies indicated that there is a shortage of NEDs with a digital background. However, much of this is a fault could be that of the major search firms looking for candidates in prior FTSE directors. It is time to cast the net for a varied pool of talent to aid the creation of balanced, effective Boards.
Expectations of NED and NED Expectations
Company Expectations
Essentially, a Non-Executive Director is expected to be a cohesive and influential member of the Board whilst maintaining an independent and outside perspective. Their contribution to strategic leadership is imperative and the NED must be prepared to challenge Executive recommendations to strengthen business. They are also expected to draw upon their valuable skills and experience to execute their role effectively in relation to:
• Setting and revising company strategy and objectives
• Risk management and internal control framework implementation
• Succession planning
Employee Expectations
However, for an NED, it is equally as important to understand what they can expect from a company on appointment. Taking on a role as a Non-Executive Director can broaden experience and elevate skill sets to the next level.
The NED must have a clear understanding of what is expected from him/her and the control and responsibilities they will have under company legislation. Furthermore, the skills and expertise the company wishes to utilise from them must be detailed, along with notes on time commitment desired from the NED both in terms of formal time and informal time. Appointments must include a clear description of the role in the letter of appointment, an appropriate fee and Directors’ and Officers’ (D & O) insurance.
It is beneficial for prospective NEDs to liaise with the company Chairman, other Directors and senior management to discuss and agree the role in-depth. This would also be an ideal opportunity for the NED to gain an extensive understanding of the business of the company.
Continuing Professional Development
• Induction about the company
• Annual agenda of Board meetings, with meetings held at regular intervals, and with sufficient time given to each point to be discussed
• Which Sub-Committees will the Non Exec sit on or Chair – all Non Execs should join one or more Sub-Committees (Audit, Risk, Remuneration, Nomination, Consumer etc)
• Receive Board papers of an appropriate length and quality in order to prepare for meetings
• Receive timely minutes that effectively reflect the discussions and decisions taken at the meetings
Non-Executive Directors are expected to be treated as other Directors to allow for full participation at Board meetings. With all Board members being held responsible for the success of business, it is essential that Board members relay key risks to the NED as they are not involved in the day-to-day running of the business. Therefore, the Non-Executive Director needs to have confidence in Board members to adequately identify, record, control and report risks to them.
Risk Management and Internal Controls
Working as a Non-Executive Director associates the individual with a company and its Board which carries legal, financial and reputational risks.
Risk management in itself is a cycle of identifying, assessing, monitoring and mitigating risks. This may not result in the removal of acknowledged risk, but the process in which to handle circumstances correctly and affectively. The NED, although collectively responsible for risk management along with all Board members, is heavily reliant upon the internal controls already in place working properly and the Non-Executive Director may need to seek professional advice from an accountant, insolvency practitioner or lawyer following the identification of a financial problem.
It goes without saying that risk is congruent with business. Risk is a pitfall that businesses face regularly and systems initiated must be able to adapt, escalate and control to address the challenge and report to the Board immediately. An effective system of internal control is fundamental to robust risk management and regular checks of set procedures are vital to maintain an effective control system.
Difficulties
It is possible that a company may get into trading difficulties through a changing market or through ineffective management and governance and these issues can escalate. A Non Exec must be fully aware of the Company’s situation and be au fait with the risks that can arise in adverse trading periods and the impact of those risks on business and their responsibilities. It is the Non-Executive Director’s responsibility to seek professional advice at an early stage.
Wrongful Trading
When a company fails to recognise trading beyond a point at which Directors are aware, it is referred to as wrongful trading and prospects of avoiding insolvency liquidation are slim. A company is considered insolvent when it cannot pay debts on time or when the value of its assets are less than the liabilities. Directors can find themselves in the firing line for the company’s debts if they do not strive to minimise loss to the company’s creditors.
Insolvency
A point can be reached when a company has to admit serious fault and an insolvency practitioner is called upon as soon as possible. The advice given will enable Directors to deliver correct governance and management to validate that they have endeavoured to avoid wrongful trading. As previously mentioned, the NED plays no part in the day-to-day activities of the company and therefore, the Non-Executive Director must be made aware immediately of any signs that the business is deteriorating, allowing them to manage the situation and challenge any reassurances that management may give.
Conclusion
The Role of a NED
The role of a NED is challenging position, independently providing advice and method to a business to help overcome business challenges. However, the reward can be great in regard to remuneration and sense of accomplishment.
The role is ever-changing, continuing to develop over past years’ alongside businesses need and desire for an effective board that can help improve aspects of a business.
More and more businesses are understanding the advantages to employing an independent Non-Executive Director to their board which provides greater opportunities for prospective NEDs.
First Flight Non-Executive Directors specialise in the search and selection of Non-Executive Directors. Aiming to broaden the Non-Exec gene pool and provide more diverse candidates to clients.
First Flight is the ideal place for candidates looking for a Non-Exec Role to begin their search, please contact us to discuss your requirements.
The independence of a Non-Executive Director should be agreed by the rest of the Board. If the Non-Exec is being proposed because he or she is a friend of the Chairman or CEO then they do not satisfy the independence criteria and it is hard to see how such a Non Exec can be truly effective and research indicates that this is often the case when “friends” are appointed as Non Execs.
Ineffective Non-Executive Directors result in ineffective Boards which can be enormously expensive and sadly we see many examples of this.
Specific expertise for a specific Board
There is a difference between being a good Non Exec and being the right Non Exec for a particular role, and this difference is often a specific skill-set or background that an organisation believes is important to have around its Boardroom table.
Some examples of Non Exec projects that First Flight have undertaken recently are:
- clients requiring NEDs with expertise in digital marketing and e-commerce;
- Financial expertise is another frequent requirement for a Board’s Non Exec;
- We are also seeing more clients requiring a Non Exec with a demonstrable strong customer-focused background;
- With many clients the NED is expected to demonstrate strategic expertise. This can extend to helping with strategy formulation and being expected to take a pro-active part in strategy development which may be a “strategy away day”; in others, the NED’s strategy responsibility is confined to questioning, challenging and refining the Executive’s proposals.
In these examples it is very difficult if not impossible for the Non Exec to be objective and contribute effectively unless they are truly Independent.
Good NEDs should be able to offer objective oversight and knowledgeable independence to help resolve disagreements impartially and make sure difficult decisions are taken wisely.
For Non Execs to be effective they must, in our view be able to think and speak independently.
In addition to providing clients with the best Chairs and Non-Executive Directors who have the time available to be truly effective, First Flight provides the following expert analysis of the composition, structure, commitment and remuneration of your Board and its alignment to your strategic goals. First Flight Pre-Search Services:
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1. Skills analysis
We work with you to ascertain what skills your Board requires to achieve your objectives, what skills you currently have around the Boardroom table and where the gaps are. We cover functional and technical expertise, industry/market knowledge, key event experience, hard and soft skills, formal and informal roles within the Board and how the Board contributes to diversity goals.
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2. Succession Planning
We work with you to produce a succession plan for your Non Execs. We examine the specific skills they have, their input, how many other roles they have, their tenure and re-election dates, and what sort of Non Execs your Board will benefit from and who we can provide you with in the future.
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3. Remuneration Benchmarking
We can provide a Board benchmarking service comparing your company with organisations that you see as your closest peers. Metrics include: Chair and NED remuneration, Chair and NED time commitment and involvement, Board size and diversity and Sub-Committee structure. As part of this service we recommend what you should pay your Non Execs.
Non-Exec Director Development
We are pleased to offer companies personalised seminars that will help your NED's understand not only the legal and practical responsibilities of the Non-Exec Director but the key skills to being an effective Non-Executive Director. We can tailor these seminars to cover the following topics:
- NED roles and responsibilities
- Legal Liabilities and Corporate Governance
- Interpret Financial Reports
- Board committees – Audit, Risk, Remuneration and Nomination
- Effective behaviour in the Boardroom
- How to add value as a Non-Exec Director
Corporate Seminars
We have been running a range of events over the years for CEO’s, Company Chair and Non-Executive Directors including talks by guest speakers. Our Board events have provided an opportunity for us to share knowledge and experience of the Non-Exec landscape and how to achieve effective Boards. Areas covered include:
- Corporate Governance
- Ethics and Culture in the Boardroom
- Legal Responsibilities
- Skills Evaluation
- Succession Planning
- Shareholder Relationships
- Director Remuneration
Guest speakers:
Jane Mitchell, JL&M Ltd
Jane’s career started in television broadcasting at the BBC in London, where she worked with the best in the business on such TV icons as Tomorrow’s World, Grange Hill and Blue Peter. It was at that early stage that she developed a passion for effective communication and learned the value of mutual respect and great teamwork.
In 2005, Jane set up JL&M and now advises, 'guides' and supports (some might say challenge), leaders in organisations large and small, as they find ways to embed their ethics, values-based leadership and behaviours. At the heart of Jane's work is the principle that people willingly take responsibility for their own behaviour and actions at work when they understand what the ‘corporate’ ambition is and how they can contribute to it, and are recognised for that effort. “There is wisdom, knowledge and enthusiasm at every level of an organisation and when dots are connected effectively the insights everyone gains can be harnessed to drive real and positive change.” It's connecting the dots that is the key.
Janes’ clients who have had the courage to tackle these difficult issues, include Rolls-Royce Holdings, BAE Systems, BP, SERCO, Meggitt, BT and Co-operative Bank.
Jennifer Palmer, BA (Hons), FCIS, MIoD, SMIRM
Jennifer began her City career in 1993, enjoying success in executive recruitment before joining JPMorgan and qualifying as a Chartered Secretary. Since then she has worked for a number of FTSE 100 banks and financial institutions including Macquarie Group and Standard Bank Group before becoming the Deputy Head of Global Assurance for RBS.
In 2014 Jennifer set up Goldstream Governance Ltd a specialist consultancy providing corporate governance, operational risk management and assurance expertise.
Her recent appointments include interim Director of Governance, Risk, Legal and Compliance for a NHS Financial Trust and Special Advisor to an internationally renowned governance consultancy.
Cliff Weight, Director and Executive Compensation Consultant
Cliff Weight is a Non Exec at Share Soc, the Individual Shareholders Association, and has developed ShareSoc’s Remuneration Guidance, which contains specific recommendations for companies with less than £200 million market cap. Cliff is the author of the Directors’ Remuneration Handbook and has over 30 years’ experience as a remuneration consultant. Cliff is a member of the QCA Corporate Governance Expert Group, the Advisory Board of the High Pay Centre, the Editorial Board of Executive Compensation Briefing, and is a Non-Executive Director of MM&K, the leading independent remuneration consultant and Manifest who provide Corporate Governance research and voting services to investors and others.
In addition to providing clients with the best Chairs and Non-Executive Directors who have the time available to be truly effective, First Flight provides the following expert analysis of the composition, structure, commitment and remuneration of your Board and its alignment to your strategic goals.
First Flight Pre-Search Services:
- 1. 1. Skills analysis
We work with you to ascertain what skills your Board requires to achieve your objectives, what skills you currently have around the Boardroom table and where the gaps are. We cover functional and technical expertise, industry/market knowledge, key event experience, hard and soft skills, formal and informal roles within the Board and how the Board contributes to diversity goals. - 2. Succession Planning
We work with you to produce a succession plan for your Non Execs. We examine the specific skills they have, their input, how many other roles they have, their tenure and re-election dates, and what sort of Non Execs your Board will benefit from and who we can provide you with in the future. - 3. Remuneration Benchmarking
We can provide a Board benchmarking service comparing your company with organisations that you see as your closest peers. Metrics include: Chair and NED remuneration, Chair and NED time commitment and involvement, Board size and diversity and Sub-Committee structure. As part of this service we recommend what you should pay your Non Execs.
Young companies should consider bringing in a Chairman and a Non-Executive Director or at least a Non Exec as they will be of great benefit enabling them to grow with a solid foundation and experience and ensure that key decisions you make are the right decisions.
The benefits of Non Execs for young companies:
- Outside objectivity and strategic input
- Entrepreneurial flair
- Help identify the key issues – an “ideas sounding board”
- Raises company profile
- Mentor & sounding board for the MD/CEO
- Assists with growth problems
- Network of contacts
- Good value resource compared to consultants & advisers
- Facilitates fundraising & provides comfort to funders
- Reduces Board conflict
- Can provide specific skills such as: finance, management of growth, “done it before” etc.
More often than not, young companies struggle to gain funding due to the lack of credibility in their management team and this shortcoming can be addressed with the appointment of a high calibre, successful and experienced Chairman and/or a Non-Executive Director including maybe a Non Exec FD to ensure the finances are well managed.
First Flight very much work on the credo that successful companies are 85% good management and 15% good idea and it is widely accepted that funding tends to follow successful people which Non Execs have to be.
Businesses are started by passionate entrepreneurs - people with a vision and talent in their fields. However there are often skill and experience gaps at Board level that may hold the business back, cause it to make wrong decisions and concern investors. A Non-Exec is an affordable way to access those skills and experience.
If SMEs/Growth Companies are considering strengthening their Board they should consider appointing a Non Exec and should use a provider with considerable experience of helping young growth companies. First Flight has handled hundreds of Non Exec projects over the years for young companies. In addition to providing Non Execs who are “business savvy”, add value and contribute to the success of the company they also sometimes consider investing to align their interest with the existing Directors who are likely to be shareholders – this is known as “smart money” and the added commitment of a Non Exec having some “skin in the game” is beneficial and gives comfort to outside investors.
First Flight advocates that for companies with a turnover of less than £1m the Non Execs should not be paid any fees and should be focused on preserving cash and growing the business; this is only practical when the Non Execs invest and of course this is a most cost effective option – a wise owl or two and no cost!
Investing Non Execs for young companies:
Young companies are the future and should be encouraged but they face two challenges: a) lack of funds b) lack of experience.
Getting funding remains a challenge for young companies. Businesses are started by passionate entrepreneurs - people with a vision and talent in their field which is what is needed to get a new concept off the ground.
Investing Non-Execs, who have grown a business and been involved with success are an invaluable asset. First Flight pioneered the concept of investing Non-Executive Directors and have completed some 140 projects helping young companies.
In addition to adding valuable business skills and experience, Non-Execs can fulfil various functions at different phases of a company’s development, including introducing valuable contacts. EIS and SEIS tax relief makes investing in early-stage businesses attractive, on average a Non-Exec will invest £25k so two NEDs can provide £50k.
Overall Non-Execs are an effective way to access experience as well as funding and can play a crucial part in the future success of a young business.
The independence of a Non-Executive Director should be agreed by the rest of the Board. If the Non-Exec is being proposed because he or she is a friend of the Chairman or CEO then they do not satisfy the independence criteria and it is hard to see how such a Non Exec can be truly effective and research indicates that this is often the case when “friends” are appointed as Non Execs.
Ineffective Non-Executive Directors result in ineffective Boards which can be enormously expensive and sadly we see many examples of this.
Specific expertise for a specific Board
There is a difference between being a good Non Exec and being the right Non Exec for a particular role, and this difference is often a specific skill-set or background that an organisation believes is important to have around its Boardroom table.
Some examples of Non Exec projects that First Flight have undertaken recently are:
- clients requiring NEDs with expertise in digital marketing and e-commerce;
- Financial expertise is another frequent requirement for a Board’s Non Exec;
- We are also seeing more clients requiring a Non Exec with a demonstrable strong customer-focused background;
- With many clients the NED is expected to demonstrate strategic expertise. This can extend to helping with strategy formulation and being expected to take a pro-active part in strategy development which may be a “strategy away day”; in others, the NED’s strategy responsibility is confined to questioning, challenging and refining the Executive’s proposals.
In these examples it is very difficult if not impossible for the Non Exec to be objective and contribute effectively unless they are truly Independent.
Good NEDs should be able to offer objective oversight and knowledgeable independence to help resolve disagreements impartially and make sure difficult decisions are taken wisely.
For Non Execs to be effective they must, in our view be able to think and speak independently.
