How should companies use their non executive directors?

Non executive directors are crucial to company success, but only if their experience is properly utilized. Shareholders are interested in short term success, executives come and go and can be focused on their own careers, but the true custodians are the NEDs.

A recent study asked non executive directors: are you really involved in the strategy of your company? Only 40% answered yes. So how should companies fully utilize their NEDs?

1. Involve them in strategy. The board needs to ensure that NEDs are actively involved in looking at all strategy options and making decisions thereon.
2. Make them central to risk. Strategic attention to risk is part of the job of all non executive directors. This should span all sectors, but is particularly important in companies involved in dangerous activities where at least one NED should have wide experience of the sector so that changes can be made and risks reduced, where necessary.
3. Let them help choose advisors. Successful companies use a lot of advisors. Headhunters, investment bankers, HR consultants, accountants and remuneration consultants are all good examples. Advisors should be used particularly in areas that the business has no previous experience. NEDs are best placed to know who is available and what they can provide.
4. Use then when going global. When companies are looking to grow globally and asking the questions, “What countries should we be in?” and, “What should our focus be there?” companies need NEDs who really understand the culture, legal framework and political environment in those countries.
5. Put them at the centre of corporate governance. NEDs play a vital role in monitoring the “hygiene” and “housekeeping” of the companies where they sit on the board. They need to set a relationship between the management, board, shareholders and other stakeholders to provide a structure to obtain company objectives. A non executive’s focus should be on both corporate governance and strategy. Focusing on performance without having adequate checks and balances is like building on sand. Research has shown that good governance can create value itself and surveys suggest that major institutional investors are increasingly willing to pay a premium for it.