What to expect from an NED
The right non-exec director (NED) can be transformational but some members have fallen into the trap of not defining a role and recruiting in the same way they would any key hire. AN ED should be able to advise on the basics of compliance and governance (ie d ispute manuals, employment contracts, shareholder agreements, customer contracts, etc) but they should also keep the vision front of mind while challenging you on strategy, business plan and relevance of KPls in your business. A NED should also be able to advise on the right types o f funding and how to recruit senior hires. It's good to remember that NEDs are there to influence, not control.
Here are some insights and recommendations from roundtables with members and specialist executive recruiters:
Role: Most members pay NEDs to prep and attend board meeting and then, depending on individual needs, agree time for calls, training, CEO support , etc.
Recruiting: Create a structured process: write a job spec, shortlist 3 or 4, meet them face to face, ask for a presentation, then reference them. They should know they are up against others
- Tip: Test the strongest with a 3-month trial consultancy to get a feel for personality match, soft skills and whether they should invest or offer them equity
Fees: Most members recommend keeping it as a straight payment to start with (e.g. 6 months) and some trial N EDs on a consultancy basis paying bonuses per project. Specialists advise that you should expect to pay a NED between £18,000 to £40,000 a year for 2 days per month. Depending on how fees are structured with other incentives, NEDs should be paid £1000-£2000 per day, but be clear on expectation and appraise them against agreed KPls like any other key hire.
- Tip: Probe them to determine if they have a real interest in your business rather than doing it simply because they need the fee or experience
Diversity: Find a NED who is involved with 2 or 3 different types and sizes of company for a breadth of experience and advice; ensure they also bring competencies, skills, and experience that is missing from the board
Incentives: To determine whether you should pay equity, agree a valuation for the business they can help you achieve and by when; build this into a growth shares agreement to keep them incentivized; and appraise on related KPls
- Tip: Members and partners advise caution with NEDs who have only ever been professional advisers or never run a business and recommend finding someone who understands entrepreneurs and their challenges
Tenure: Most members recommend around three years for a NED to get you to one stage and getting a new NED for the next. They advise that you agree ahead oftime that you will conduct a yearly review to check that it's working for both parties
Commitment: It varies according to individual needs, with some members paying for half a day a month and others a day or even two a month. Specialists advise that a NED should be committed to meeting with you 2 days per month and be available for a call outside this; so agree a minimum threshold to allow for this
- Tip: Partners caution that not enough commitments can be as bad as too many as they could be practicing on you If your NED doesn't work out, acknowledge it, sit down, and discuss the mismat ch or misalignment then plan succession. It's your money and your business so treat it like any key hire and move on.
While NEDs sign up t o Companies House and have fiduciary duties, an Advisory Board has no legal responsibility and will only meet two or four times a year to discuss big strategic ideas rather than financial performance. However, with many in exec roles, an Advisory Board could help you find and evaluate potential NEDs in a low cost/no cost way w hile gaining from their profile, insight, and network.
While a NED is employed by you, an advisor will engage in a light touch way to help you tackle a specific problem or develop an idea. They can help you establish credibility in a new market and you can Leverage their influence and insight for new Launches or pivots. It's usually recommended that you have a board made up of people from within your industry as well as outside for a more diverse perspective and to create more appeal for those joining it.
Here are some areas to consider helping you build and optimize an Advisory Board:
Wish list: Think about what you want from an Advisory Board, then write a wish List of who you want, and try to find related contacts on Linked in to introduce you or endorse an approach
- Tip: Don't underestimate the power of flattery and their desire to make an impact in a relatively light touch way
Maximising time: An Advisory Board will usually commit to meeting at least twice a year for two hours; for the greatest value, set a clear, short and simple agenda to focus discussion on strat egic decisions
- Tip: Don't invite an Advisory Board to suggest ideas on how to grow or improve your business if they don't know much about it; keep it focused and present specifics
Build a profile: The main appeal for membership of an Advisory Board is profile, buying into your vision and purpose, association with your brand, and access to other people they are impressed by or interested in it. If PR is part of the offer, make sure you generate some PR and release an announcement to the industry press
- Tip: They shouldn't expect a fee but make meetings appealing by hosting in a nice private dining room; breakfast usually works better, particularly for older members
If you're interesting in connecting with our members by joining the Club, apply to be a member here.