What Boards look for when recruiting new Non-executive Directors
By William Micklethwait. First Flight Non-Executive Directors Ltd
Boards look for a range of skills, experience, expertise, business acumen and personal qualities. Although the blend varies with each assignment, the most common categories are:
1) General Organisational and Commercial skills
The Financial Reporting Council’s Corporate Governance Code (on which the AFM’s Annotated Corporate Governance Code is based) identifies four key NED responsibilities: strategy, performance measurement, people (IE: the recruitment, appraisal, remuneration, development and, if necessary, replacement of the senior Executives) and risk. As well as demonstrating good knowledge of all of these, candidates for NED roles in Financial Mutuals will typically have to show understanding of membership relations, regulatory compliance, financial knowledge and corporate governance. There is, however, considerable variation in the scope of the NED’s role. For instance, in some organisations the NED’s strategy role extends to helping with strategy formulation and being expected to take a pro-active part in strategy development days; in others, the NED’s strategy responsibility is confined to questioning, challenging and refining the executive team’s proposals.
2) Personal qualities
Fortunately no one wants identikit NEDs. In fact headhunting firms like First Flight are sometimes asked to conduct psychographic profiling to ensure that there is a balance of different personality-types on a Board to reduce the danger of ‘Group-Think’. But whilst diverse personalities are encouraged, there are some common personal qualities that new Non Execs are often asked to demonstrate in order to prove they can fulfil key parts of the NED role. For instance, to show that they can constructively challenge the executive team, prospective NEDs need to provide evidence of independent thinking, curiosity, an ability to question and probe diligently but unthreateningly, excellent listening and influencing skills, courage, and acceptance that theirs is a supporting, rather than a starring, role.
3) 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. For instance, First Flight has recently undertaken searches for financial mutuals that were seeking NEDs with expertise in digital marketing, understanding and explaining risk in complex financial instruments, and establishing a strong customer-first culture. (Not surprisingly no candidate qualified for all three shortlists!)
4) Diversity.
The AFM’s Annotated Corporate Governance Code states that Board appointments should be made ‘with due regard for the benefits of diversity’. In practice, this means that fewer and fewer Boards consist solely of white British men, and that when a vacancy occurs, any headhunter that recommends a shortlist without any women or candidates from ethnic minorities, is likely to have its search process questioned – and rightly so. Some Boards go beyond this, insisting on positive discrimination measures such as all-women shortlists. It is then down to the headhunter or internal recruitment team to ensure this can be implemented without contradicting the AFM’s Annotated Corporate Governance Code’s other principle that the appointments are made on merit, against objective criteria and following a formal, rigorous and transparent procedure.
5) Time Commitment
There is a growing recognition that as NEDs’ responsibilities have expanded, so too have their time commitments. This is manifesting itself in three ways: firstly fewer NED roles are described purely in terms of the number of formal Board and Committee meetings that the NED has to attend (our research indicates that successful NEDs spend more time outside of meetings than inside them); secondly, the overall time commitment is now usually stated as at least 2 days a month; and thirdly, there is more scrutiny of the maximum number of roles a Non Exec can carry out successfully. For instance, First Flight believes that NEDs should not have more than 4 or 5 roles.
6) Combining commercial success with empathy for the mutual ethos.
Although mutuals have a different raison d’etre to profit-maximising companies, they have to compete in the same commercial marketplace. Therefore mutuals usually look for NEDs who have a track-record of hard-edged business success but can also show support and understanding of the benefits of mutuality.
As the above list demonstrates, NED candidate requirements are as multifaceted as NED roles. As one of my clients recently put it – ‘we want a Jack of all trades, and a master of some.’
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William Micklethwait is the London Practice Director of First Flight Non-Executive Directors. More details about First Flight, and information about the NED role, are available on its website –www.firstflightnonexec.com
