Non-Executive Directors are a familiar presence in larger companies but less so for smaller businesses. However, more SMEs are now appointing NEDs and with good reason.
Firstly, what is a NED?
While there is no legal definition, the Institute of Directors describe the role as providing “a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors.”
It’s important to note that although NEDs are not employed by the company, they have the same legal duties and responsibilities as the executive directors.
So why are NEDs right for SMEs?
They provide “independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct” (Cadbury report 1992)
Being independent, they are more objective during discussions and decision making
They bring specialist expertise and skillsets missing from a small business
While the board of a SME is focused on running the business, NEDs ensure they don’t overlook other important areas such as corporate governance and risk management
NEDs have valuable contacts, who can make a significant contribution to the development of a SME
Value NEDs bring to SMEs
What value does a Non-Executive Director add to a board that Executive Directors can’t provide?
While each NED will bring something different to the boardroom, here are a few of the common qualities they can offer a SME:
Breadth of business experience
A specific skillset or expertise, e.g. digital skills or financing expertise
Experience from the last recession will be invaluable in planning economic recovery from Covid-19
Challenge the status quo – the “we’ve always done it this way” viewpoint
Challenge individuals, constructively, facilitating clear and healthy debate
The skills to bring a sense of calm and objectivity to meetings when discussions become heated
Awareness to understand that what’s right for the business, may not necessarily be right for individual board members
Independence from management to provide checks and balances to a business
Someone who is widely respected, e.g. in the industry, financial circles etc, adds to the SMEs reputation
Every NED will have the experience to bring many other personal qualities to the boardroom table, all adding to the value they provide to a SME.
