January 17th, 2013
Boards are a balance of personalities and skills. Those operating in the business look to Non Executive Directors for an independent, external view of business strategy and operations. A recent Korn/Ferry report asks the question, “What Makes an Exceptional Independent Non Executive Director?
In the Foreword to the report, Mary Francis CBE, Senior Independent Director at Centrica says, “NEDs must bring hard edged skills and experience to the board table, increasingly these days in areas such as risk and IT, not just finance. And most of us will applaud the increased emphasis being placed on training, for even the most experienced NEDs need to keep up with the latest developments inside and outside their company.”
The report, drawn from responses made by chairmen, CEOs and board members, points out that, since they last researched this topic in depth – back in 2005 – many changes have taken place. Nevertheless, some things are still true. “NEDs must still have a breadth and depth of executive experience. They must remain highly independent and ask challenging, often difficult, questions on behalf of shareholders. They must possess strong interpersonal and communication skills. They should be ready to listen, but also prepared to speak up when appropriate.”
It is the evolution of the role driven in part by ‘macro shifts’ such as increased regulation and the quickening pace of globalisation and in part by the global financial crisis. “The job today is a fundamentally bigger undertaking”, the report suggests. It requires more time and more skill to be invested. Competence has become ‘paramount’ but the ability to focus in on detail is also now increasingly demanded. “whilst NEDs must advise from a strategic vantage point, increasingly they must understand real operational detail in order to do so. They must therefore be better informed, even more committed and posses a wider array of operational knowledge.”
It is the increased demand for technical skill sets – risk, finance and technology – that Korn/Ferry flag up as significant. “Knowledge of these specialised categories is increasingly sought after and could soon become a common denominator for all board members.” Alongside the complexities of risk, they point out that sophisticated numeracy skills are “also likely to become de rigeur”.
Whilst NEDs bring with them attributes like experience, intuition and a well rounded executive career, “there are procedures boards can adopt to enhance the performance of individual NEDs and hence the effectiveness of the board as a whole.” These are often informally applied now and in need of improvement in the future and include more formal induction programmes, rigorous training and continuous support for NEDs.
Achieving a diverse board is also addressed in the report. There seems to be a consensus, the report suggests, that “boards need more than retired executives. Current serving executives and those who are wrangling with international business issues in their “day job” bring a much needed currency to board rooms.” They also attract more of the same to boards that employ them.
Chairmen and NEDs also point out the new challenges facing boards which they say include over-regulation, shareholder representation and remuneration levels. “Boards today are sensitive to government and regulatory bodies seeking to exert greater control over their composition and working practices. The Bribery Act, Walker Review, EU Green Paper and The Davies Report are just some examples of the intrusions being felt by boards. This debate in particular threatens to become overly politicised and potentially damaging board effectiveness in its wake.”
The report concludes, “Today’s NEDs must be more engaged, more numerate and more technically competent than ever before if they are to be equipped to succeed in a role that has become much more demanding than was the case even seven years ago.”
The report quotes the words of Jim Leng, former Chairman, Corus Group, “The day of the gifted amateur has long gone.” We might go further. The increased professionalism of non executive Directors, which we are already seeing around us, seems to be a trend that is set to continue. Are your NEDs keeping pace with this change? If you are a NED, is this change being managed well by your board(s)?
About The Korn/Ferry Institute
The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organisational leadership and human capital development.www.kornferry.com
The report, “What Makes an Exceptional Independent Non-Executive Director?” can be downloaded from chiefexecutive.com.