The role of the non-executive director, or NED, is one that is subject to constant flux and evolution. With the business environment subject to myriad changes at ever accelerating rates, it is becoming increasingly important for boards to ensure that their NEDs possess the necessary skills and personal qualities to drive performance and ensure the success of their business. With these increasing demands and expectations, it is a good time to re-evaluate the question of what exactly makes a good non-executive director.
In the second decade of the 21st century, it seems that the business world has never experienced such volatility and growing complexity. The aftermath of the global financial crisis has introduced unprecedented focus and public attention on the world of corporate governance. Practices that were once regarded as standard are now subject to open criticism, and businesses worldwide are facing the threat of increasingly strict regulation in an atmosphere which demands greater accountability and genuine transparency.
A key player in this tumultuous business environment is the NED. With their responsibilities for developing their company’s strategy, ensuring effective risk management and setting appropriate remuneration levels, the key characteristics required of a modern NED are inevitably shaped by this new order. Yet, at the same time, the traditional core qualities of a good NED remain as essential as they have always been.
NEDs need to possess and be able to utilise their own executive experience, bringing their wealth of personal knowledge to bear on their own executives. However, their need to monitor, constructively criticise and challenge their executives means that they also need a highly independent mindset, never shying away from posing the genuinely tough and difficult questions that need to be asked. This requires a strength of character and a clarity of purpose: a NED always needs to know precisely when to speak up, and also when to listen.
With the increasing importance of their responsibilities for ensuring the accuracy of their company’s financial information, and the efficacy of its financial controls and risk management, today’s NED requires a degree of intellectual competence like never before. They still need to be able to take the broadest view of the business, with the capacity to see their company’s direction from an outsider’s perspective in the context of the wider business environment. However, they also need to have a genuine insight into operational detail, with the necessary skill to interpret the cogs within the machine.
In practice, this places a greater need on NEDs not simply to be better informed – on matters of risk, finance and technology – but also to possess the necessary commitment and dedication to maintain a broad and detailed understanding of these issues in the context of the rapidly changing business environment. Coping with an equally changing internal environment is important too, with CEO succession planning and assessment requiring NEDs to demonstrate effective interpersonal skills and the ability to assess and evaluate both current and potential executives.
Finally, the very best NEDs need to be constantly asking these questions of themselves, to be open to personal criticism and feedback on their own performance, and constantly striving to serve their companies in the best ways possible.