Changing needs of NEDs



Today’s challenging economic climate, coupled with uncompromising media attention mean that the pressures on Boards have never been more acute. Chairmen, Executive and Non-Executive Directors must demonstrate not only commercial and operational ability, but display exemplary professionalism and compliance standards. The need for balance, diversity and independence is essential; a properly composed and developed Board will be well positioned to lead to succeed.

Norman Broadbent’s Board Practice consultants have appointed over 1,000 Chairmen, Chief Executives, functional board directors and Non-Executive Directors for clients of all sizes across all sectors. Their success derives not from a single perspective, but from applying the breadth of their expertise and taking a holistic approach to every challenge. Norman Broadbent’s consultants discuss how the changing landscape is effecting the requirements of Non-Executive Directors.

Sue O’Brien

Sue is CEO of Norman Broadbent and is actively involved in Board and Group HRD searches across a Consumer-focused portfolio.

Dr Mike Rugg-Gunn

Mike is a Chartered Occupational Psychologist at Norman Broadbent and specialises in Board and Senior Leadership Assessment and Development, Talent Management and Corporate Cultural Change.

Krystyna Nowak

Krystyna is a Managing Director at Norman Broadbent and leads the Non-Executive Board Practice. She also focuses on senior executive search in the Financial Services sector.

 

Neil Holmes

Neil is a Managing Director at Norman Broadbent within the UK Board Practice in addition to leading the CFO practice. He is experienced in Chairman, Non-Executive Director, CEO and CFO roles across all sectors.


1

How do you ensure Non-Executive Directors bring diverse thinking to the Board?

2

How have specific roles changed over the years?

3

What will impact Boards of the future?

4

What does this mean for the people joining these Boards?

Sue: Diversity of thought on Boards is an interesting concept because the predictors of a person’s career can happen very early on – people can look at the personality traits of an individual and conduct tests that suggest particular career paths. If someone has a linear career in one function, they don’t have diversity of thought.

This is a key point to think about when looking at the diverse composition of a Board. If you can predict the personality type of a Finance, Marketing or Audit professional then surely you need to focus on a diverse range that, when they get to Board level, represent a diversity of thought. People from the same function are inclined to think the same way - even with development programmes.

Therefore, in order to achieve the right decision-making around the table, the key is to focus on diverse functional experience and behaviours. You don’t want a group of like-minded people in the Boardroom, there has got to be a psychological link between natural behaviours, the way individuals make decisions and the complexity represented.

Mike: But the moderating variable is the cultural tone that is set in the group. For Boards, it is the Chairman being able to allow diverse people to express innovative ideas and encourage them. That is what leads to improved decision-making. Just having diverse people on the Board does not guarantee different perspectives, these need to be fertilised by a Chairman that understands this.

Kyrstyna: Ironically, it takes a Chairman who is more creative themselves to encourage diverse people, and be more receptive and open to a challenging, or ‘wild card’-type, individual.

Neil: However, it is often said that CFOs make the best Chairman because they have been in a very supportive role to CEOs throughout their career, and the Chairman role is also a supportive one. But on the flipside, a CFO is probably not going to be the most creative and innovative of the individuals in the room. So if there is going to be diversity around the Board table, these individuals may be more riskaverse and not want to be challenged, preferring to go with something that they know. There is no one set answer, which is why objective analysis of the diversity of thought is essential.

Sue: I think over the last five years being a Chairman has probably been the most been driven by governance, the media and every single whitepaper that has been written on Board composition

In addition, the role of the Senior Independent Director (SID) has become much more influential. Because the SID should be the person that has an absolute opportunity to ‘red card’ the Chairman. dynamic changing environment. This has

Krystyna: I have spoken with a number of Chairmen who have suggested that the SID’s election should be ratified by shareholders to give them the authority to have that ‘red card’. Because at the moment in corporate governance there is a way of getting rid of the CEO, the Chairman can do it, but there is no way of getting rid of a Chairman. And so the SID should have a little bit more external power.

At the moment I think that is a weakness in our code system. But it is reassuring to know that Chairmen are seeing that and discussing the idea of giving the SID some teeth.

Sue: The power of a SID is particularly relevant if it involves a growth business. Because if you look at the majority of the FTSE 250 and the composition there, changing an established Chairman is probably the one thing that can influence the dynamic of the organisation in the most rapid timespan. Yet organisations are nervous of doing that, unless they have got a really strong SID.

So I would welcome greater clarity on the role of a SID and a better connection between them and the investors. Investors should be able to go to the SID and ask about the effectiveness of the Board, or even express concerns about the Chairman.

Mike: Technology will obviously play a big part as it has already impacted a lot in the last four or five years - for example it has enabled more people to be considered for Board roles who are in alternative geographies. But, it’s a double-edged sword as it may also encourage Boards to conduct meetings by video conference and other such facilities that reduce social interaction – a key part of working as a team.

Another impact technology has had is with the arrival of Big Data. Not having enough data is less of a problem; instead the issue is that they have too much of it. Therefore, it is about having people that can manage these data and can discriminate what information is valid for the decision-making process and what isn’t. It requires a different level of intellectual ability for individuals to make sense of this ‘fire hose’ of data and use it correctly to make the right decisions.

Looking to the future, Boards need to be much more discriminatory about how they understand, manage and assimilate complex data.

Sue: The data analytics point is vital, but it is about future-thinking analytics rather than deep-diving in to historical data. Too many Board meetings focus the majority of their time analysing past performance and not enough time working out the future. Furthermore, the more time spent at the Board table looking forward, the less time needed to examine where things went wrong in the past.

Krystyna: There is a greater focus on capabilities, rather than specific skills. A CV only shows so much, and is a tool that can be used to tick-off some of the required skillsets, but the real added value is in the interviewing and referencing of the candidates – finding out who they worked with, how they worked and assessing the cultural fit.

Neil: We have also seen more interest in the ‘marzipan layer’. In the past, in order to be a Non-Executive, that individual had to have been a plc director. But that has changed over the last few years. And while it is mainly due to the emphasis on gender diversity, it has been the same for men and women.

This has led to an increased focus on education for new Board members; they need to understand about shareholder engagement and must have a broader understanding than just their functional specialism. There is no point in them sitting on the Board as an HR or Marketing expert, they have got to contribute to the whole debate.

Sue: Exactly. I think future Boards will be more efficient if they focus on whether individuals have managed a P&L in their career, rather than whether they have sat on a Board before.