How non-executive directors are helping boards in increasingly complex business world
TODAY'S business leaders are faced with an ever-growing list of challenges, each adding to the complexity of operating their company.
Traditional issues such as dealing with competition, recruitment and staff development have been joined by more complex contemporary matters such as cyber security and, of course, Brexit.
Added to this, a number of high profile cases of boardroom breakdowns have highlighted the need for good corporate governance to allow businesses to successfully continue to operate in an increasingly sophisticated environment.
For the majority of firms, it means looking outside their organisation to access the necessary skills and expertise required to tackle these issues which can include recruiting non-executive directors (NEDs) to support the board.
Non-executives play a crucial role in providing a creative contribution to boards by providing independent oversight and constructive challenges to the executive directors.
They are often sought because they have a breadth of experience, are of an appropriate calibre and have particular personal qualities. Additionally, they may have some specialist knowledge that will provide the board with valuable insights or, perhaps, key contacts in related industries.
Key responsibilities for non-executive directors include providing strategic direction, monitoring performance, and can also be responsible for determining appropriate levels of remuneration of executive directors.
Of the utmost importance is their independence of the company management and any of its ‘interested parties'. This means they can bring a degree of objectivity to the board's deliberations, and play a valuable role in monitoring executive management.
The UK Corporate Governance Code advises that the balance of executive and non-executive directors should be such that no individual or small group of individuals can dominate the board's decision-making.
The benefits for the board, and the company and its staff as a whole, are therefore obvious but NEDs have also been shown to have significantly improved the diversification of boardrooms across the UK.
The annual SpencerStuart UK Board Index reviews board governance practices at the UK's leading companies.
Among the findings of its most recent report, which researched the make-up of boards at FTSE 150 firms in 2017, was that the average age of a NED was more than 60 for the first time ever.
This was perhaps not surprising given that in many (but not all) cases, non-executives are those approaching or in retirement.
However, the data also illustrated that, in keeping with the overall make-up of boards, the proportion of non-executives that are women is also increasing, now accounting for 34.7 per cent of NEDs compared to just 16.7 per cent a decade ago. This is well ahead of female representation on boards overall, which is still less than 25 per cent.
In a bid to further support non-executives, the IoD recently launched a new NED Forum with business advisory firm Deloitte which will provide a network and events programme for NEDs at companies across Northern Ireland.
This will build on the already extensive work the IoD is carrying out with existing and aspiring non-executive directors, including supporting the training of those seeking to become a NED for the first time and connecting non-executives with businesses where they can really make a difference.
These efforts support our mission to improving the effectiveness of boards at companies of all sizes and in all sectors, improving economic outcomes for all an increasingly difficult business environment.
:: Kirsty McManus is national director of the Institute of Directors (IoD) Northern Ireland