What should the role of an NED be in a modern company?
A few years ago NEDs might have been part of a ‘good governance’ box ticking exercise, however the role has developed and the expectations of NEDs from executives and other stakeholders is far greater these days. They should be supporting the Board and CEO by challenging and thinking outside the box. With CEOs under increasing scrutiny, it is extremely beneficial to have trusted NEDs to advise and be on hand to bounce ideas off.
How much time should they devote to a role?
The time input required from a NED is dependent on the size and complexity of the business. It is vital for a NED to understand the business inside and out and more time may be needed to achieve this for certain businesses. Stakeholders have increased their scrutiny of Audit, Nomination and Remuneration committees, therefore chairing any of these is likely to require a considerable amount of additional time.
What is the ultimate reason for having NEDs?
I see the main remit of a NED as providing a check and balance to the executives. NEDs should be regularly challenging strategic and operational matters to ensure the right decisions are being made and the correct people are held accountable.
BDO led the way in professional services, having recognised the value they can bring, with Lesley MacDonagh being one of the first-ever NEDs appointed by an accountancy firm. She joined BDO in 2008, two years before the Financial Reporting Council introduced its first audit governance code making it compulsory for the largest firms to appoint non-execs. BDO has gone on to appoint three further NEDs, Simon Figgis, Jeff Randall and Russell King, with Lesley stepping down after a nine-year term.
Combined they bring a diversity of experience, character and thinking to BDO’s leadership team, highlighting the firm’s continued focus on its quality, people and reputation in the marketplace.
Are there risks here, potentially scaring off the more risk-averse NEDs who may be just what organisations require?
Taking on a role as a NED is a big responsibility. There is a perception that their purpose is to protect various stakeholders and as more high-profile companies face difficulties, it is likely that NEDs will continue to face criticism. This means taking a NED role entails risk, including potential damage to his or her personal reputation and the resulting negative effect on future opportunities for them.
Should they be remunerated more if they are expected to take on more risk?
As the personal accountability of an individual undertaking such a role increases, it is understandable that NEDs wish to be fairly remunerated for both their time and their exposure to more risk.
Should there be more scrutiny of other roles when recruiting NEDs, including a need to declare any conflict of interest, and how many roles is too many?
There is no strict guidance on the number of roles and on conflicts of interest, however with the increasing responsibilities NEDs must take on, there comes a time where an individual cannot devote the right amount of time to a company. Both this and conflicts of interests must be considered by the nomination committee when deciding if an individual is suitable for the role or not.
How is the role of a NED likely to change in the future, given the high-profile failures of the likes of Carillion and BHS?
As previously mentioned, challenging the executives on the board is a key part of their role and this element needs to increase. There is also a risk of a gap forming between what NEDs do and what is expected of them from certain stakeholders and NEDs have a responsibility to ensure they minimise this gap. As I said, the role is evolving however the biggest change will most likely be in the type of person who will become the NED of the future. Different skills will be required, particularly as we enter the digital age, and that in itself will bring its own challenges.
Read about the BDO.NED non-executive directors programme.