SMEs and Nonexecs
The Case for SMEs using non-executive directors.
The need for Small to Medium sized Enterprises to use the services of non-executive directors is just as strong as for the PLCs, but different in the detail.
The many reasons why the larger organisations use independent nonexecs are already well understood. Additionally, when a company has utilised venture capital, there is invariably a stipulation that one or more independent directors be appointed to monitor the company's progress and, to some extent, act as the venture capital provider's watchdog.
These reasons do not necessarily apply to smaller companies. What may not be so widely appreciated are the benefits that can be realised when they voluntarily take on nonexecs.
Probably the initial biggest influencing factor on the smaller company board is the realisation by the other directors that a new, experienced, 'fresh pair of eyes' has come on the scene. This paves the way for improvements in boardroom performance and promotes a more prepared, structured and effective board meeting.
The next important aspect is the contributions that the new nonexec can make. These usually take two forms. The first relates to input based upon the nonexec's own expertise and experience. The second concerns his/her appraisal of the board and company.
The former point should follow naturally if the CEO has made a careful selection and appointment from the database of candidates. The nonexec will invariably have specialised knowledge and relevant experience from which to draw. These are particularly germane to discussions on the future strategy of the company.
The latter point comes down to the ability of the nonexec to listen well, absorb detail and ask pertinent questions about the way the company conducts its affairs. This provides enough material from which to form a balanced view and then to deliver a clear report of the company's good and bad points.
It is vital that all board members understand the necessity for the nonexec to retain, and exercise, his/ her independence. It is of little use telling boards just what they want to hear. Indeed, constructive criticism usually provides the most valuable opportunities for improvement.
In the smaller company scenario, the nonexec can work closely with each of the directors to help them identify their strengths and weaknesses. This leads on to setting their key performance indicators and objectives, all of which considerably enhance the company's chances of success.
Here is a case history that shows how valuable a well-chosen non-executive director can be - in their own words.
Katy Cawkwell, one of the partners, writes - 'Latitude is an eight people partnership that set up business in 2001. One of those people is a non exec and the part he plays has been key to the success of the company so far.
He is twice as old as any of us and sometimes seems to have twice the energy and enthusiasm too. He limits his commitment to a day a week, but he puts a great deal into making that really valuable. He has introduced us to new clients and new channels for marketing, for example, we have always worked in strategy support in isolation, we now work alongside coaches who introduce us to clients with a real need and then follow up on our work to make sure the strategy gets put into action.
On the practical side of things, he secured a great venue for our launch party and used his reputation at the bank to get us an overdraft. On the less tangible side, he has a wealth of experience to draw on, in business, sport and life. He points out common pitfalls, before we topple over the edge, he shines a clear light on the problems with the way we work and he always has an inspiring story to tell, when we say it isn't possible.
He is worth every penny we pay as a salary and far more. We have agreed a package with him that is largely dependent on the success of the company. He has faith in us and we are more than happy to share our profits with the man who helps us bring them in.
We would strongly recommend appointing a non exec, even if (or especially if) you're just starting up. Take time to find the one that is right for you, be very clear about commitment and remuneration and it will be repaid to you more quickly than you would expect.'