Why take on a non-executive director or advisor?

editorial image

In my capacity as a business consultant/advisor I act as a non-executive director (NED) to a technology start-up in addition to being an advisor (not a director) to another couple of established businesses.

NED’s are directors who act in advisory capacity only; they do not have a regular (executive) role in the business and are probably only on-site one or two days a month. Typically, they attend monthly board meetings to offer the benefit of their advice and serve on committees concerned with sensitive issues such as the pay of the executive directors and other senior managers; they are usually paid a fee for their services and are expected to commit typically two days per month to the business but are not regarded as employees.

NED’s are legally responsible for the business just like executive directors and if you are an advisor to the management team of a small business you could be considered a shadow director and just as liable as the senior team in this business as well.

NED’s and advisors can make a board or management team more effective and do this very cost efficiently. A good NED can be particularly effective in:

Providing an independent overview of the business strategy and performance.

Bringing in outside experience from other companies or industries.

Counteracting board weaknesses in a particular area.

Planning the succession of executive management of the business.

When looking to take on an advisor/NED it’s important to get the right person as well as the right experience as any NED/advisor will be working closely with the senior team and is likely to help the business deal with some difficult and testing issues.

The stronger the personalities on the board, the stronger a NED will need to be.

NED’s and advisors should have no axe to grind and no fear of upsetting their colleagues.

Use NED’s and advisors as agents of change as without them there is a tendency to do the same things the same way, without looking at alternatives.

Draw on NED and advisors’ experience and objectivity to help make tough decisions. For example:

Closing down loss making activities.

Laying off employees or asking a fellow director to resign.

Deciding emotional subjects like director’s pay, share options, bonuses or, that old chestnut, the company car policy.

Managing the business through unexpected crises.

Appointing new auditors or directors.

Deciding to take legal action on a particular issue.

It can be difficult for a single NED/advisor to win over a board or senior management team; there should be two or more for the role to be 100 per cent effective.