Recently, the QCA (and investors, Downing LLP) commissioned Henley Business School to look at the role that Non-Executive Directors (NEDs) play in growth companies.
As you may know, there is a big difference between those giant companies that make up the FTSE 100, and the remaining 1,200 or so small and mid-sized companies that are listed on
the London Stock Exchange’s main market and on AIM (its market for growth companies).
With this research, we wanted to highlight the very different role that NEDs play in smaller companies when compared to the largest companies on the stock market and what comes through from the findings is not just a stark difference between small and large, but also some fascinating insights about how the role, and skills required, of NEDs in growth companies vary greatly.
Size, complexity, type of ownership and stage of development all have an influence over the type of chair and NED that can add value. One key element developed by Henley Business school in the report is a model of four types of of growth company depending on their stage of development.
What the report also shows is that the role of a NED in a growth company can be extremely varied. What this means is that NEDs need to challenge themselves regularly to ensure that
they are the right person for the role they are in and, if so, to understand how they can deliver for their company. They also need to be confident that they have the skills and
experience to actively support the company as it transitions to a new stage.
We believe there are a number of important questions that growth companies’ NEDs should ask of themselves to ensure they are performing in their roles, both now and prospectively.
This includes, do my skills and experience match up with my company’s stage of development? If not, am I the right person, and am I prepared to have an open discussion
with the company chair about this?
Similarly, chairs of growth companies should assess regularly whether they have the right people on their board for their company’s size and stage of development. Just as importantly
they, too, should be looking to the future to ensure that the current mix of talents is relevant for the next stage of their company’s growth. And they should be mindful of whether they,
too, remain relevant to the company’s growth path.
The role of NED in a company is an extremely challenging one and also includes certain legal responsibilities.
Judith MacKenzie, partner at Downing LLP, said: “As small company investors, we are experienced in dealing with NEDs, and their quality varies greatly. This report should provide both chairs and boards with a clear framework and direction when selecting and appointing NEDs that can add value and drive their company’s long-term growth.
"Importantly, I think the real ‘bite’ is that it underlines the serious consequences of failure to act within the law and the regulations.”
Being a NED isn’t easy and we hope that this research can help those in these roles deliver effectively as their company grows.