What is a NED? This is a question I asked myself when I first agreed to become one in 2008.
If you look up NED in a dictionary you will see it is a derogatory term applied in Scotland to hooligans, louts or petty criminals. In a business context, a NED is an acronym for Non-Executive Director. According to the Institute of Directors the non-executive director’s role is to provide a creative contribution to a Board by providing independent oversight and constructive challenge to the executive directors. Unlike an executive director, NEDs don’t have responsibility for the daily management and operation of a business but in the eyes of the law, they have the same legal duties.
The duties of a director as set out in the Companies Act 2006 are:
- a duty to act within their powers, as laid out in the company’s Memorandum and Articles of Association as well as other sources
- a duty to promote the success of the company
- a duty to exercise independent judgement
- a duty to exercise reasonable care, skill and diligence
- a duty to avoid conflicts of interest
- a duty not to accept benefits from third parties
- a duty to disclose interests in a proposed transaction or arrangement
While this list may be more typically associated with large public companies there can be many benefits to appointing a NED in a smaller company too. Removed from the day-to-day running of a business, a NED can bring a fresh perspective and challenge practices that have become embedded within an organisation but may no longer be adding value. This degree of challenge may not be always be a comfortable process for a business owner, but it is a valuable one.
Over the last decade or so, I’ve not only been a NED myself but have also hired the services of a NED for the business I co-founded and ran for 16 years. Having served as a NED with firstly, CPR Regeneration, then Cornwall Development Company and most recently, the Cornwall and Isles of Scilly Local Enterprise Partnership (CIoS LEP), I was able to recognise that hiring a NED would be the most effective way of helping my business, TRAC Services, achieve its growth ambitions.
Our experience of taking on the services of a NED with specific financial expertise provided a range of benefits. He asked difficult questions and also picked up on things I couldn’t believe we’d missed.
Within a very short space of time our financial management systems were transformed and, as a result, the overall performance of the business improved. It was great to take the time, once a quarter, to step back and take a bigger picture view of the issues our company faced. And it was particularly beneficial to be doing so with someone who ensured we adopted a strategic perspective and was then able to provide the guidance to help us achieve our objectives. We formalised the process, with set meetings and minutes from those meetings, but you don’t have to. For smaller businesses a monthly phone call can be enough to gain valuable insights and support.
In most instances a NED is sought as a general business practitioner to act as a sounding board focusing on issues that are common across all businesses (such as strategy, process and planning) irrespective of the goods or services being sold. Whether a NED has, or is required to have, specific industry knowledge and sector experience, their primary aim is to provide the objectivity and overview that can make all the difference.
In our situation, we knew we would benefit most from a NED with financial experience. However, there are many different circumstances when taking on a NED could be a positive step for a business, for example, if a business is looking to prepare for sale, investment or refinancing, or needs to restructure personnel, or operations, or both. Having clarity on the areas that you believe you need assistance with is always a useful first step.
Finding the right NED can take your business to the next level. Make sure the person you choose has the skills and experience you need, is someone you can establish a good working relationship with and has a strong network that could bring additional benefits to your business. We found our NED through personal recommendation, so asking your network can be a great place to start.
My business, Sarah Trethowan Business Advice – Bridging the Gap, offers a range of services including my working in a non-executive director capacity. Please do get in touch to talk through what would best suit your requirements.