How to become a non-executive
By CA magazine
3 June 2020
For many companies, NEDs are a vital component in the boardroom, drawing on their hard-earned experience to offer independent advice and sage governance.
Adding value
The role of the non-executive director (NED) is often filled by senior executives who might be planning their retirement, yet still crave a professional challenge with reduced day-to-day stress, or C-suite veterans looking to gently expand their portfolio of business interests in later years. The NED brings to the position a broad familiarity with the nature of the company or sector, but primarily offers expertise and independent insight.
As a relative outsider, the NED should be able to challenge directors and provide constructive criticism, when necessary holding management to account. According to the Institute of Directors (IoD), an NED’s independence makes them ideal for monitoring and evaluating a company’s executive directors. In terms of character traits, modesty is a virtue. The Financial Times notes: “The ideal nonexecutive is someone who is quiet, knowledgeable and competent.”
Essential qualities
1. Independence
Chief among an NED’s qualities should be their independence from the firm’s executive directors – objectivity is vital. Their only connection to the company should, ideally, be their NED contractual agreement. Boards need them to be impartial when it comes to making long-term decisions for the company, and the NED must use integrity and put aside personal motivation and short-term gain when assessing appropriate options for the company.
According to the Association of British Insurers and the Pension and Lifetime Savings Association, any of the following could compromise an NED’s independence:
- Being a former executive of the company
- Having any immediate or past contractual relationship with the company
- Selection by an informal process
- Having share options or a pension with the company
- Representing a significant shareholder
- Being judged not to be independent for any other reason
2. Strategic thinker
When tasked with considering company strategy, the NED must be able to see the bigger picture and should be equipped with the critical skills required to challenge executives and respond to detailed briefs.
The NED should keep abreast of key performance measures in order to advise on strategy in the long run.
3. Good governance
It goes without saying that a decent NED must have a thorough understanding of corporate governance in order to appreciate the legal and regulatory framework within which the company operates. Experience of boardroom governance is advisable when assessing the roles and responsibilities of those on the board in order to help establish its optimum health.
4. Positive attitude
Although it is by no means a full-time role, taking on the responsibilities of an NED is a serious commitment that requires dedication and resilience. The NED should bring a degree of professional enthusiasm to the boardroom, particularly when times are tough.
Rates of pay
There are no set rates for NEDs – much depends on the size of the company you are working for. In 2018, the Financial Times noted that the average fees for non-executives had increased by 41%, in a decade, to £67,655 per year, while a survey carried out by the IoD in the same year reported that NED pay ranges from £38,000 to £105,000 per year.
Roles at smaller companies pay the least and may be more demanding. Typically, an NED will be required to work 15–25 days a year – at least one or two meetings per month – and can expect to dedicate a significant amount of time to the role during the first few months as they get up to speed with the company. Do not become an NED if you think it merely entails turning up for meetings with a few hours’ preparation beforehand.
Gender parity has been a C-suite priority in recent years and the Spencer Stuart 2019 UK Board Index reports that women now account for 42.7% of NEDs and last year, for the first time, comprised the majority of new appointments.
How to find roles
As with any job search, you should first explore your own network and reach out to suitable contacts. Refresh your CV and spruce up your LinkedIn profile. Make sure you understand what kind of NED role you are looking for. A position at a plc would usually be a board role focused on corporate governance, while working for an SME would likely require a more hands-on role.
Stand yourself in good stead by looking to gain experience as a school governor or take an unpaid role as an NED at a charity or not-for-profit organisation. Or seek a mentor who has a board role and ask them for advice, insight and, perhaps, personal referrals.
There are a number of NED courses available, and it’s also worth getting in touch with executive recruitment firms. Ideally, you would be approached for private sector work by a headhunter, which puts you in the best negotiating position.
Top tips from experienced NEDs
Norman Murray, Chair of Scottish Ballet
Do as much formal and informal due diligence as you can on the business before accepting the role – and then expect it to look different anyway once you’re on the inside. Do not be afraid to say no to the flattery of an appointment and, once on board, if there is a decision you cannot live with, be prepared to resign, giving your reasons why.
Finally, don’t do it for the money – making a difference is the reward, especially in the charity/third sector.
Lin Homer, NED, Nuffield Health
I’ve enjoyed learning about new organisations and working out how to flex my own skills to assist them. Recognise you need to learn new skills – being an NED is a different role to being an executive. So, take a little time, see if someone else on the board will mentor you and, most importantly, don’t try to do the execs’ roles for them!
Victoria McLean, CEO City CV, which coaches young directors to their first NED position
Network regularly, whether that’s going to formal events or just having a coffee and a chat. Broaden your experience by seeking voluntary roles – a trustee or school governor, for instance – that have similar responsibilities to those of an NED.
Jim Coyle, NED, HSBC
I like being active, I didn’t want to go from CFO to zero and I really enjoy the challenge, as well as the support and coaching. LinkedIn is a useful tool to let people know you are looking for non-exec roles – all the headhunters use it. Keep your profile up to date and explain you are an experienced CFO now looking for a plural career.
This article first appeared in the June 2020 issue of CA magazine.