Recently we asked questions about non-executive directors (NEDs) in two surveys conducted by the pollsters, YouGov.
The question of what companies expect from their NEDs threw up some interesting results.
One area where they currently add value is in bringing broader business experience, providing checks and balances, improving a company’s approach to corporate governance and providing a longer-term perspective to the business.
Providing valuable contacts with other organisations and raising investor and media profiles were seen as being less important in the boardroom at this time.
Companies also told us that they’d like to see NED’s contributing more toward long-term vision and planning, along with putting their broader business experience and valuable contacts with other organisations to use.
One of the qualifying requirements of a NED is to be independent and 94 per cent of the companies thought that in general NEDs are sufficiently independent from
management to provide an autonomous and critical voice to the running of companies. Interestingly we asked the same question of their advisers where just 66 per cent thought that NEDs provided the requisite level of independence.
So we can see what companies expect from their NEDs, but what do their investors think?
In conjunction with corporate brokers, Peel Hunt, YouGov asked 11 top mid and small cap investors what they thought about NEDs and the results show that investors see many good and bad NEDs.
For instance one investor said: "There’s enormous variance here. Absolutely enormous. I have come across many, excellent non-execs and many poor non-execs, and yes, it’s a real challenge to find good non-execs for small companies.
"I don’t think it’s that challenging to find bad non-execs for small companies."
Others recognised the inherent difficulties of the role, in particular stepping up when things go wrong. There is some acceptance that remuneration nowhere near matches the cost of the service they provide if a firm had to buy it in, but they think that too many NEDs just turn up for the cash.
They also have the pressure of lacking time to double check what is really happening at their firm or a lack of experience to know what they should be asking.
Another investor said: "It’s a thankless task, you don’t get much credit for it but there’s massive disparity and how do we improve the quality of non-execs?
"It’s important that we have people who are independent and could provide suitable challenge to the executive directors, can help support them on difficult decisions, and
are willing to make difficult decisions themselves."
The challenge of attracting good NEDs who bring wider business experience, long-term vision and a good understanding of what investors want is a big one and one that needs to be addressed. Board evaluation and selection is gradually being professionalised rather than being conducted in the golf club but this needs to be accelerated.
Our QCA/YouGov Sentiment survey showed that the mean salary of a NED in our sector is just short of £40,000 for around 15 hours a month. Not bad at one level, but a NED is putting his or her personal reputation at risk and 15 hours a month can suddenly turn into a near full-time job if things go wrong. And that’s the time when investors rely on NEDs and start making serious judgments about their performance. If it is negative then this will undoubtedly affect a NED's ability to gain future directorships.
It is an incredibly important role, adding so much value, but it is not a sinecure where you can turn up and take the cash. It’s becoming much less a lifestyle decision following retirement.
The sooner companies listen to investors on this subject, the better their own performance will be.