The risks associated with being an non-executive director (NED) have always
been there, but have become more obvious over the past few months. The Higgs
Report into corporate governance will undoubtedly support the DTI’s intention
of regulating the role and responsibilities of NEDs still further. Coupled with
the lobby from institutional shareholders, individuals may reconsider whether
the NED role is worth the time and effort demanded to add any real value to
quoted companies.
The Higgs Report is far too long, but the key principles are a logical next
step and outline what is already best practice on many boards in the UK. It
will be interesting to see if the final code of conduct will be flexible enough
to accommodate the variations in size and complexity of boards and if it will
be pragmatic enough in its transitional arrangements to encourage long-term
compliance. All the boards I sit on have already started to review the
composition and terms of reference of their various committees in the light of
the Higgs Report.
The external perspective, guidance and coaching provided by NEDs is
significant and must be maintained, with much greater attention paid to proper
job specification, induction, regular training and the time required to
understand operations, in addition to attending formal board meetings.
Discussions about commensurate compensation should then reflect these
responsibilities and the market value that individuals bring with their
experience and expertise. Succession planning and performance management should
be as much a part of an NED appointment as they are with executive recruitment.
The pool from which NEDs are selected must be widened to embrace those with
extensive experience of running smaller businesses or other unlisted
organisations and to introduce diversity into the UK boardrooms, which continue
to be largely populated by white males.
In my early portfolio days, I took on a NED position for very little
financial reward as a way of broadening my scope and experience. Today, I would
not be prepared to commit the time and effort required for such a small fee,
given the growing responsibilities of the role. Remuneration will have to
increase in both the private and public sector if boards are to benefit from
the best candidates. Indeed, headhunters tell me that it is already becoming
more difficult to attract NEDs.
Like employment legislation, this is a great opportunity for HR
professionals to initiate change. This is the golden moment to review the whole
process of director succession, selection, development, performance management
and remuneration – boardroom practices from which HR has frequently been
excluded in the past.
By Lesley James, Former CIPD vice-president and currently a non-executive
director at Selfridges
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