27 Jul 2012

The bigger picture

The days of non-executive directors being drawn from the old boys’ network are on the wane. In an increasingly competitive market, says Peter Bartram, accountants looking to become NEDs have to offer value to the board beyond financial know-how

So you want to be a non-executive director? It won’t be easy. Competition for places on boards is tough. When the Institute of Directors (IoD) announced in April that it was setting up a register of potential non-executive directors (NEDs), 1,400 of its members expressed an interest to be included during the first fortnight.

And accountants seeking their first appointment face a catch-22 situation, warns Deborah Harris, who chairs ICAEW’s Non-Executive Directors Group. "To be attractive to boards, you have to have been on a board and to have been on a board, you have to have been attractive to boards," she says.

You can engage with people, know how to influence and act as a thought-provoker at any age if you have the maturity

Deborah Harris

She suggests that accountants seeking their first NED appointment could burnish their CV with some relevant voluntary work. "Don’t sniff at being on the local branch of a national charity or serving on a local authority," she advises.

Some forward-thinking companies allow middle managers to take on NED roles as a way of enhancing their own talent pool, Harris says. "Training at board level adds value to an executive’s day-to-day work," she adds.

Mike Brooks, who has held several non-executive roles since he left a full-time career in the oil and gas industry, gained his first two appointments in quick succession. He saw the post of a governor at the University of Portsmouth advertised on the Cabinet Office’s public appointments website, applied and was appointed. Shortly after, he became a NED at the Medical Research Council – after responding to an advertisement in The Sunday Times.

He advises: "The way to get an appointment is to look at the advertisements and the description of the person they’re seeking. Often, they will ask for experience in finance, especially in audit and corporate governance. So to get your first post, pick ones that specifically want finance expertise. That will usually get you on to the long list and often on to a short list."

Nigel Guy, who is one of Britain’s most experienced NEDs and a non-executive board member of ICAEW’s Corporate Finance Faculty, advises prospective directors to get involved with NED networks such as those run by ICAEW. "You’re likely to have greater success if you get an introduction through a network," he says. "So work your networks hard while recognising that, particularly in the quoted sector, there is a definite process to go through so that NEDs don’t become just an old boys’ club."

But when that first invitation comes, it’s important to take a close look at the company and the offer before deciding whether to accept. Guy, whose NED appointments include communications services provider Azzurri Holdings and listed investment trust Northern Investors Company, asks himself three questions before accepting a new role.

"The first is: do I understand the business?" he says. "That’s important so that you will be able to identify issues that emerge and ask the right questions. The second is: can I deliver some value on the issues the company faces? If the company starts with a clear idea of why it wants me, that’s great. But if they think they want X and you deliver Y, it’s bound to end in disappointment.

"The third question is: can I get on with the people around the boardroom table? I’d want to meet or talk to the majority of the board and certainly the whole of the executive team," he adds.


Philip Arnold, who has been a NED at five companies, points out that NEDs have the same liabilities as executive directors. "Because there are a lot of responsibilities, the first thing I would want to do is a mini due diligence on the company to make sure the corporate governance was in order," he says. That would include a detailed look at the finances, at whether the company was complying with data protection legislation, and at its employment policies and practices.

I look at a company’s strengths and weaknesses and what I could contribute as a NED

Alistair Summers

Alistair Summers, who has 17 years’ NED experience with companies that include a shirt maker, an engineering business and a specialist IT equipment cleaning company, says the companies that approach him tend to be looking for financial and strategic support. "I’m an accountant and that’s the main value I add to businesses. I look at a company’s strengths and weaknesses and what I could contribute as a NED."

But checking out whether you could be an effective NED at a company is only the first step. When you’ve accepted the job, it is important to get up to speed quickly so that you can make a positive contribution.

"It’s about getting your hands dirty," says Summers. "The way to understand a business is to go out, feel it and be part of it." That means talking to a wide range of people in different departments. "You’ve got to walk the floor," advises Guy. He says it is important to read the company’s business plans and particularly any pitch documents it uses with customers. "I reckon it can take three months for me to get under the skin of a business and in that time I meet as many people as I can."

He says a new NED can learn a lot from water cooler moments. "You stand by the water cooler and chat to people who come up, and show an interest in how things are going," he says.

Harris, who is a NED and chairs the audit committee at London’s Moorfields Eye Hospital NHS Foundation Trust, is another believer in walking the walk. "To understand a business, you need to meet people one or two layers beneath the C-suite and talk to them about the issues they face," she says.

A n element of caution awaits the new NED who has held previous executive posts – the need to learn the difference between direction and management. "You have to draw a very clear line of demarcation between being a NED and being an executive director," advises Guy. The key is leaving the executive team to get on with managing the company day to day, but being there to advise, monitor and look at the broader strategic picture.

"If you cross the line between NED and executive responsibility, you do so at your peril, or you do so for a particular time and reason," warns Guy. "It’s important to recognise that the day-to-day responsibility for the business rests clearly on the shoulders of the management team."

Arnold is one NED who has had to tread that line carefully while providing financial advice to Clinithink, a venture capital-backed start-up that offers healthcare data services. "As a NED, I provide financial expertise until the company needs a full-time financial director," Arnold explains. "But I keep the boundaries between executive and non-executive clear – I make recommendations to the other directors."

As accountants are often brought onto boards because of their financial expertise, it is important they avoid the danger of becoming a kind of shadow financial director, encroaching on the real FD’s role. "In the best situations, FDs are looking for support from other accountants and there is camaraderie because you’re talking a similar language," says Summers. "They like having someone they can talk and relate to and who understands the financial technicalities."

The broader view

At the same time, accountant NEDs must not become pigeonholed as financial experts. Rather, they need a broader view of all the company’s activities. And they need to act as an independent voice – sometimes as a critic of the executive directors and senior management team.

As non-executive chairman of the Cornhill Partnership, the parent company of four executive recruitment firms, Guy tries to position himself as a "trusted and critical friend" of chief executive Robert Walker. "He can talk about the challenges of the business and the important decisions he wants to bounce off somebody," says Guy. "And I can challenge the management team on why they have chosen decision A over decision B."

Brooks, a NED at the Driver and Vehicle Licensing Agency, says to be an effective "critical friend" you need to be able to make sense of the issues that are discussed around the boardroom table. But that critical friend role can be a challenge, especially when there is resistance from the executive team to an idea that a NED has proposed. "You have to decide whether the resistance is justified or if it’s just a not-invented-here syndrome," Brooks says. "Sometimes you have to be persistent without being bloody-minded, because after a while the other directors may warm to the idea and even start to think it’s their own – which is the best outcome."

But if you’re planning to give fellow directors a hard time, be sure of your facts, advises Guy. "If you are seeking to ask challenging questions and hold management’s feet to the fire, you need to be sure the facts are understood and well articulated."

Some accountants hopeful for a NED appointment have taken the Chartered Director qualification, awarded by the IoD. This is something that Arnold – one of nearly 1,000 directors created so far – thinks could bring about a change in the way boards of private companies seek NEDs.

"I’d be amazed if the majority of NEDs in companies with a turnover of more than £2m aren’t there because they knew someone," Arnold says. "But it’s changing, and you can see it changing." In future, being offered a NED post may be more about what you know than who you know.

And Harris wants to see more accountant NEDs in their 30s and 40s. "It’s not necessary to be grey-haired with years of experience," she says. "You can engage with people, know how to influence and act as a thought-provoker at any age if you have the maturity. You don’t have to wait until you’ve got your gold watch."

Lord Curry, Independent non-executive chair of the Better Regulation Executive

"I see the non-executive directors in government as having a role in challenging government departments on their regulatory ambitions. Having a better regulation responsibility on the board is, in my view, an important part of the role of the NEDs.

"The business minister Mark Prisk and I hosted a breakfast in February and we talked about the work we’re doing within the Better Regulation Executive. Many of the NEDs found it helpful and enlightening – they understood our agenda better. Economic growth and better regulation are seen as going hand in hand. So if we can reduce regulatory burdens it will hopefully help contribute to economic growth.

"One of the conclusions [of that breakfast] was that the NEDs would ensure that better regulation appeared on the agenda at least twice a year on the departmental boards. I’m very keen to ensure that the NEDs deliver on that commitment.

"We will be encouraging them to apply the same logic that they would in their own organisations. As businessmen they’re concerned about the impact of regulation, so they ought to be concerned about the impact of regulation within the department that they have responsibilities for. It’s important. They’re there for their commercial knowledge and that includes a good understanding of the impact of regulation on business."


How NEDs turned around a £13m deficit

When Colin Coulson-Thomas, an experienced NED and an FCA, joined the board of primary care trust NHS Peterborough in 2009, he found the organisation was heading for a year-end deficit of £12.8m. Worse, the monthly "run rate" loss was increasing.

Coulson-Thomas, and other NEDs who had joined the board at roughly the same time, were concerned about this and the fact that the interval between bi-monthly meetings was too great to get a grip.

He takes up the story: "My previous experience as a company director and consultant led me to focus on uncovering root causes of the deficit and addressing certain reporting and governance issues.

"After some conversations with concerned NEDs, and through the audit and governance committee, I commissioned a review from an independent former finance director, via the internal auditors, of the causes of the emerging situation. This looked, for example, at the process used to put budgets together and the exercise of budget accountability. After discussion with certain NEDs, I proposed to the audit and governance committee (and subsequently to the board) a combination of governance changes. These included monthly reporting and board meetings, new-style financial reports, a monthly CEO’s report and the setting up of a separate finance and performance committee.

"The recommendations were accepted and the governance changes were later supported by another independent review. Working within the new governance arrangements, with increased awareness of what was happening, and by addressing causes and tighter budgetary control – and with a succession of part-time finance directors and CEOs - the financial position was stabilised and the organisation posted a modest surplus the following year."

As Coulson-Thomas points out, the story shows how NEDs can bring their previous experience to bear on a current problem.

He adds: "Perhaps the key lesson is the need to work with one’s fellow NEDs as the collective impact of two – in this case three – who initiated action through the audit and governance committee can be much greater than that of a single NED. It is also important to give due credit to the executive team for delivering savings within the new governance set-up."