a guide to taking on a non-exec ebook

e-book

A Guide to Taking on a Non-Exec for Small Businesses

This short e-book is designed to be an easy to read, practical guide for small businesses considering getting external help to achieve their business objectives or aspirations.

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Contact: [email protected] Telephone: 08450 038213 www.nxd.co

Disclaimer: All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the author,

except for the inclusion of brief quotations in a review.

First Edition 2012. Copyright NXD Services 2012. Contact the author: [email protected]

Book design and production by Lean productions. www.leanproductions.co.uk

Contents

Introduction ...................................................................................... 3

Part 1 - Why do I need external help?...............................................4

Part 2 - How can I possibly afford a non-executive director or boardadvisor?………………………………………………………………….5

Part 3 - How do I go about finding the right non-exec for mybusiness?........................................................................................8

Part 4 – What role can I expect my non-exec to play?....................11

Part 5 – What benefits can I expect from a non-exec? ……………..12

Part 6 – Conclusion and Summay…………………………………….14

ABOUT THE AUTHOR………………………………………………….15

3


Introduction

This short e-book is designed to be an easy to read, practical guide for small businesses considering getting external help

to achieve their business objectives or aspirations.

Already you will be saying to yourself, why has he referred to getting external help rather than taking on a Non-Executive

Director?

The answer is simple, most small businesses that are considering obtaining external help don’t even think about that help

coming in the form of a Non-Executive Director because most small businesses view Non-Executive Directors as

expensive luxuries for the Corporate world and not relevant or affordable to themselves.

For the eagle-eyed among you there is another question, why have I referred in the title of this book to Non-Executive

rather than Non-Executive Director?

Again the answer is simple, it is because the formal appointment to the Board or otherwise isn’t the crucial factor, the

crucial factor is the role that is to be played which can equally well be played by a Non-Executive Director or a Non-

Executive Advisor – hereafter referred to as a non-exec.

The challenge is therefore clear, by the end of this book I need you – the small business leader – to view a non-exec as

potentially relevant and affordable to you; I need you to know how to go about finding the right one for you; and I need you

to understand the role he or she will play and the type of benefits you can expect he or she to deliver.

A Guide to Taking on a Non-Exec for Small Businesses

A GUIDE TO TAKING ON NON-EXECS FOR SMALL BUSINESSES 4


Part 1 - Why do I need external help?

I guess before we look at what a non-exec can do for a

business, we first need to consider the issue of whether

small businesses (hereafter referred to as SMEs) are

generally open to taking on external help and what might

cause them to be interested.

It almost goes without saying that most SMEs are

resistant to spending money on anything other than

essential materials and services – and quite rightly so. So

when is external help ‘an essential service’ and when it is,

what form should it take?

Businesses are comprised of direct costs such as raw

materials, labour relating to the production process,

machinery and transport; and indirect or overhead costs

such as management, advertising and property. Typically

SMEs view direct costs as essential and indirect costs as

unessential. So use of a transport sub-contractor or an

external maintenance contractor is ‘essential’ whilst use of

an external business advisor or taking out an advert is

‘unessential’.

The view of what is essential and what is unessential

however changes when viewed over different time

horizons. The typical SME view is correct when viewed

over the very short term, but becomes less and less valid

as one extends one’s time horizons. One does not need to

advertise to survive or even prosper tomorrow, and that

may still be true for one months-time, three months-time

or even 6 months-time, but eventually a business is likely

to stagnate and then wither if nothing is done to promote

its products and services.

Equally the temptation for most owners and managers of

SMEs is to spend time working in the business rather than

on the business – again viewed over the short term this is

right, but in the long run it is wrong, working on the

business looking at such things as strategy, direction and

process is absolutely crucial to sustainable success.

Businesses that grow and succeed in the long term are

the ones that discipline themselves to allocate time,

resource and finance to activities that protect and support

the long term as well as the short term. Probably the best

way to secure this difficult balance is to have a quality

non-exec – it also happens to be the simplest and

easiest, and (properly selected) the most cost effective

way.

Now I am going to go off at a tangent for a moment

because as much as there is a huge danger of SMEs

spending all their time and effort on short term activities

with immediate and tangible paybacks, there is also a

real danger with some businesses that the balance can

swing the other way and they become fixated on the long

term, don’t take enough care over today’s issues, and

don’t survive into the long term. I am sure you will have

come across such businesses, always taking about the

grand plans for tomorrow with heads up in the clouds, but

never with a proper grasp about what’s going on today.

This is to be avoided – ‘today’ must come first, but

‘tomorrow’ must not be ignored. Again, a good non-exec

should be able to help you with this balance.

So, if one buys into the idea that some time, effort,

resource and finance should go to long term objectives

and activities, in what circumstances would a non-exec

be an appropriate part of this? The answer could be

regarded as glib – but it is not, the answer is - always.

The right type of non-exec with a relevant background for

the SME concerned is always going to add value in the

long run provided it is allowed to function properly within

the business. I am absolutely certain at this point that a

number of people will strongly disagree and be in danger

of losing interest, but I insist on the point - the issue is

not whether it is appropriate, it is how much of this non-

exec’s time is appropriate.

The non-exec will not just help with the difficult balance

discussed above regarding the short term long term

dilemma, the non-exec will crucially perform a role that

you as business owner/leader and none of your

employees can do. The non-exec is positioned on the

edge of your business and brings a level of

independence and fresh perspective that it is not

possible for someone working ‘in’ the business to do.

Whether you like it or not, your vision around your

business is restricted –to coin two phrases, familiarity

breeds contempt and you can’t see the wood for the

trees.



But that’s not all, a non-exec can also perform a number

of other functions, the full range of which will be covered

later in this e-book, right now I want to cover two other

crucial roles. Firstly it is a fact that the perfect, fully

rounded business man does not exist, a multitude of

different business academics have tried to

compartmentalise and describe the different styles,

attributes and strengths that need to be present to ensure

a well-managed business. I do not propose to cover all or

indeed any of them specifically here, I purely want to

observe that all of them in their different ways make it

clear that it needs a mix of styles, attributes and strengths

to ensure quality management of a business and thereby

maximise the chances of sustainable success.

Secondly it is a fact that being a business owner/MD/CEO

is a lonely job especially when it comes to making difficult

and/or important decisions. It’s not until you are there that

you realise just how lonely and isolated you can be, I

know, I have had first-hand experience and the really

difficult part is there’s no one to just chat things through

with. I remember longing to have a trusted

colleague/advisor who I could discuss difficult issues with

openly and without fear of repercussion, who could act

both as a sounding board and a devil’s advocate,

someone who would ‘look after my back’ and try to protect

my (as well as my company’s) best interests, someone

who would empathise rather than judge, and perhaps

most of all someone who would not take ‘political

advantage’ of me opening up my heart.

Part 2 - How can I possibly afford a non-executive director or board advisor?

This is inevitably the second question I get when I am

talking to smaller businesses - even if I do manage to

convince them that a non-exec is relevant, there is always

the real and understandable concern over the cost

especially because of the calibre of non-exec involved.

Indeed it is an equal concern for those non-exec’s

themselves.

My answer is always the same, let’s start with what you

can afford. Now it is true that some people’s response is

that they can afford nothing and frankly if this is genuinely

the case then they should probably be contacting an

insolvency practitioner and if they are not technically

insolvent then they could, if they wanted to, afford

something. So this issue moves to amount that can be

afforded and more importantly the perceived value that a

non-exec would bring.

At this point the SME owner/MD/CEO falls into one of

three categories; those who don’t perceive any value;

those who perceive value and are willing to pay

something for it; and those who perceive some value but

view it as a bit intangible and uncertain and so are

nervous about paying anything for it.

Let’s deal with the two extremes first and then spent

some time on the big group in the middle which is

probably where you are.

The first extreme is comprised of those that don’t

perceive any real value and in any event are certainly not

willing to pay for such a service. Strangely this group was

probably a much bigger group before the recession than

it is now – the days of making money easily are over for

most and so whilst they can arguably less afford to take

on a non-exec, they can’t afford not to. Today there are

relatively few business leaders that are so confident, or

dare I say it so arrogant, as to believe that they don’t

need anyone else to help them; but where they do exist

they are unlikely to be persuaded to take a non-exec on

other than on an FOC basis and even then possibly not.

There are however still quite a number who don’t want to

involve someone else in what they consider to be their

own private business, indeed this is typical of owners of

lifestyle businesses – and let me be clear, there is

nothing wrong with this. If you are a business owner with

a viable business and no particular ambition you may

well value your independence and privacy more highly

than bigger profits and a more valuable asset. With this

sub group, it’s not that they don’t perceive the value, it’s

that they have decided they don’t want to go down that

route, so there is no arrogance or over confidence it’s a

simple matter of choice.

.



The second extreme is made up of those who immediately

embrace the idea of taking on a non-exec and are willing

to find a budget to pay for it. I don’t think the recession

has had any real impact on the size of this group, it was

relatively small during the good times and it is relatively

small now in the not so good times. For me it is great to

come across such people who are completely in tune with

my belief and passion about the enormous value that non-

execs could add to the SME sector and indeed the whole

UK economy if they were engaged on a large scale, but it

is still the exception rather than the rule. With these

business leaders it is a matter of working with them to

ascertain the optimum input of time/cost to get the best

level of returns for the business concerned

The third group is however the big one because many of

the people that used to believe they didn’t need any help

have moved their position and are now interested in

getting help and advice, but are concerned about the cost

and the certainty of getting the returns. This is where we

deal openly with the question about affordability. This is

also when I need to start talking more specifically about

how we do things at NXD as opposed to the generic

aspects of taking on non-execs, because NXD has been

set up specifically to try and make it as easy, affordable

and flexible as possible for SMEs to take on top quality

non-execs.

Our process at NXD for engaging with SMEs is as follows:

firstly we understand the SME concerned, where it is now,

where it wants to go, what challenges it faces and

something about the key people involved especially the

owner/MD/CEO; secondly we identify whether we have

the right person to become involved and whether we think

we/he/she can add real value; thirdly we work out with the

SME the level and structure of reward for the non-exec;

fourthly we jointly measure and review the tangible results

that are achieved.

It is important to say at this point that NXD is not a

recruitment company, we are about helping SMEs

improve their financial performance and deliver their

vision. In order to do that we need to understand enough

about the business to be able to identify the right resource

to go in and help deliver the desired results. Our first step

is therefore to carry out an assessment of the business

and where it wants to go. There are times when we

agree changes to where they want to go with the SME at

this very early stage typically because the previous

objectives were either unrealistic, not challenging enough

or simply there was a better direction.

Once we know enough about the business and where it

is going, we will try to find the right person (on occasions

it could be more than one) to become involved. In

practise this may occur in parallel with carrying out the

assessment of the business as mentioned above, but

even when it does it’s important to view them as two

distinct tasks. The ‘right’ person will involve a mix of

experience, skill set, functional background, contact

network and personal chemistry – and it is important to

get all the boxes ticked, it’s doesn’t have to be a big tick

in every box, but if there are any crosses be very careful

before proceeding and if the cross is in the personal

chemistry box simply don’t proceed.

The thing that we and our members (the non-execs

involved) are most interested in at this point is whether

they can genuinely add value to the SME and help

deliver the vision/direction /objectives of the business. If

this is in doubt we will not proceed, we would rather walk

away than fail to deliver reasonable results against

expectation.

Once we are clear that we can add real value we look to

agree a remuneration package for the individual who is to

become the non-exec. It is normally true to say that this

has been discussed in principle in advance of this point,

in reality it is normally discussed in principle prior to

commencing with the first step of this process, but it is

finalised when we all have a better idea of the likely

dynamics involved and the time and magnitude of the

results to be achieved. The other thing to mention,

following on from the earlier comment about NXD not

being a recruitment company, is that unless the SME is

going to employ the non-exec directly, NXD do not

normally charge any kind of placement fee, its income

primarily comes as a small percentage of the non-exec’s

income.



The main principle we work to when we first engage with

an SME is to keep the fees as low as possible to begin

with. We don’t normally have too much of a problem

getting our customers to agree this approach – no one

wants to spend more money than they have to, at least

not until there is clear evidence of the returns that the cost

is generating. The way we minimise cost is to be very

‘mean’ with the time our member puts in – we don’t want

to compromise on quality and we don’t want our members

earning ‘peanuts’, but we want to be affordable. By using

time as the flexible parameter we can ensure the best

quality input from non-execs that are earning a fair reward

at a cost that is affordable to the customer.

For example, with a small business we might start off with

just half a day a month plus reasonable telephone support

– whilst a larger time involvement may be able to add

more value, half a day is better than nothing and is

enough to add real value to a small business. Almost

inevitably once the results of the involvement start to be

felt, the time commitment and obviously cost also

increases – but the point is that the cost is small for that

initial period where the customer perceives it will get value

but doesn’t know it for certain. On occasions, NXD will

add further flexibility by agreeing terms involving success

fees and/or ‘sweat equity’ as part payment, typically this

will be for businesses that need to grow or develop quickly

and consequently need more input than they can afford to

pay for right now.

The other thing we suggest, especially to begin with is that

there is no legal longevity to the arrangement. In other

words we do not look to have any kind of ‘contractual’

term or notice period, our view is that a business should

not get tied into commitments unnecessarily and that it

should be able to cease the arrangement whenever it

wishes and for whatever reason. Having worked in a

business sector (contract logistics) for much of my career I

have a very strong view that long term contracts usually

result in difficult relationships between provider and

customer because the customer feels trapped and that

short notice periods or no notice periods result in longer

term and much more healthy relationships.

As with any business process, it is not enough to start a

process going that is designed to engage an affordable

non-exec that will help create real additional value in the

business, it is crucial to make sure that value is being

delivered in reality. So measuring results is important –

the results you measure will obviously depend on the

objectives you have defined (this is the loop back to the

first step) and there doesn’t have to be a complex set of

criteria against which you measure success, but you

must check that what you originally brought your non-

exec on to do has been/is being/ will be delivered in the

timescale agreed. Then you need to review matters and

decide how to proceed:

continue involvement, appropriate when results

are being achieved but either too early to

increase involvement or no significant perceived

additional value to be gained;

increase involvement, appropriate where results

have been good and there is a clear view that

additional involvement will generate further

results;

decrease involvement, appropriate after a period

of more intensive involvement related to specific

objectives that have now been achieved;

redirect involvement, appropriate where the

involvement has concentrated on one particular

aspect of the business and value is perceived to

address another specific aspect of the business;

change involvement, appropriate when someone

with a different skill set, experience or

background could add more value than the

incumbent;

stop involvement, appropriate if results have not

been achieved and/or there is not sufficient value

to be created in the future.

The point I am trying to get to here is make a positive

decision when you review performance, do not just

continue by default. Don’t be afraid of cutting back on

something or redirecting effort to get the best return and

don’t be afraid of spending more on it if it’s really

working. Most importantly don’t be afraid of changing

your non-exec if you need a fresh set of skills and ideas

and don’t be afraid of stopping it altogether if you’re not

getting the right level of returns – to be honest, if you

take on the right non-exec he or she should be broaching

the subject of change or stopping if they cannot see how

they are going to continue to add genuine value



Part 3 - How do I go about finding the right non-exec for my business?

This is the question that prompted me to set up NXD in

the first place. When I left the corporate world at the end

of 2007 I started getting involved with some SMEs for the

first time in my career (prior to that I had only ever worked

with and for large businesses), and the thing that hit me

like a bolt of lightning was the value that a relevant,

experienced business leader could provide to most SMEs

by spending a small amount of time but over a long time

period working as a non-executive. The problem was, if

you were an SME owner/MD/CEO where could you go to

get such a ‘beast’? For most the choice was to a

recruitment company and pay a handsome fee; to a friend

or member of the family; or make do with getting some

advice from an existing professional service provider –

none of which (as we shall cover) really provide adequate

results.

There was however an even more fundamental hurdle to

overcome which was the fact that very few SMEs even

thought about taking on a non-exec. The general view

was, and to a degree still is, that non-execs are expensive

luxuries for large businesses and not relevant to small

businesses. So when I formed NXD I knew full well that

the initial challenge would be to even get small business

owners to consider taking on a non-exec; but unless

someone put a sensible, practical and cost effective

means of small business finding the right non-execs for

them, then this situation would never change. Thus NXD

was born.

So what are the do’s and don’ts of finding the right non-

executive director or advisor for your business:

Do make sure you are clear about whether you

want a director (i.e. formal appointment to the

Board) or advisor. If you decide to take on a

director, that individual will have legal

responsibilities and will want and need to have

access to detailed information about the finances

and other aspects of your business. Also, the

Inland Revenue regard non-executive directors as

employees of the business and will therefore

expect Employers NIC to be paid. If you appoint

someone as a Board Advisor it is a less formal

role, that individual will still want to satisfy

themselves that you are operating legally and

everything is above board, but there is no formal

appointment, no need to add them to your list of

directors. Furthermore the legal obligations and

responsibilities, and the position with the Inland

Revenue, are different. If you are going down the

Board Advisor route it is better to deal with the

Advisor’s limited company and if necessary take

advice from your accountant/lawyer as to the

best way to structure things.

Do be clear about what you expect from your

non-exec both in qualitative and quantitative

terms and make sure you clearly articulate this to

him or her. This will help you both to work out

whether there is a good fit or not. If you do this,

the non-exec should give you a clear view of

whether in his or her belief it can be achieved or

not which will help you decide on who to engage

with and whether or not to alter your

expectations.



Do get someone to help you find the right person.

There are various organisation out there who can

help you, many are recruitment companies or

similar and will charge you, others like NXD will do

it free of charge and others still at a nominal

charge. Clearly you need to be careful not to

spend money on this unnecessarily but, and it is a

very important but, the cost of getting the wrong

person on board is likely to be much higher in the

long run. I am sure some people will believe they

can do it themselves, but unless you are an

experienced recruiter of non-execs with a large

pool of suitable candidates from which you can

choose and a slick and efficient process that you

can use to evaluate and short-list them, you are

highly unlikely to get close to engaging the

optimum person for your business – and even if

you do it will probably be at huge expense of your

own time. The fact of the matter is, if you can get

someone to do a lot of the work for you and if that

someone has a large pool of good people to

choose from, it becomes a rather compelling

proposition to use them; and if that someone will

do it either completely free of charge or for a

nominal sum it becomes a bit of a ‘no-brainer’. A

side benefit of getting someone else involved is

that they will help you in your deliberations about

what profile of person you want to search for.

Do make sure that you check the personal

chemistry fit. First and foremost with yourself, but

also in relation to your company culture and other

key individuals with whom the non-exec is likely to

interact directly with. What I am not saying here is

‘bring in more of the same’ or ‘don’t rock the boat’,

what I am saying is be aware if you are bringing is

someone different or someone who will rock the

boat - by all means do it if that’s what’s right for

the business, but do it deliberately and in any

event remember that you have to be able to work

with that person effectively.

Do look for someone with a great attitude and

outlook ahead of someone with a great track

record and qualifications. If you handle the

process properly you should only agree to meet

people who have a sufficiently good track record

and the qualifications you require to suit your

needs, so actually when you meet people it

should be to test out the softer things such as

personal chemistry, but also to understand what

is motivating them to work with you and what

’gives them a kick’. Someone with good skills

and experience and a real desire and belief they

can help you achieve your objectives will deliver

more to you and your business than someone

with superb skills and experience that is primarily

interested in demonstrating his or her excellence

and earning fees. Particularly beware of those

that are living off past glory.

Do look for someone who is practical and down

to earth and be careful of people who like to sit in

‘ivory towers’ away from the ‘muck and bullets’.

The reality is that unless all you are looking for is

a figurehead, the non-exec can only add proper

value if he or she gets properly involved in the

detail of the business and will engage with you

and your team on your terms. There are some

people around who have great senior level

backgrounds but have forgotten how (or are

simply unwilling) to ‘lower’ themselves to deal

with real down to earth business issues and

there are others that have simply become

bureaucrats and everything is about meetings

and reports – these people may still have a value

in the corporate world, but they certainly don’t in

the SME world.

Do not engage a non-exec purely for his or her

contacts. It is a perfectly legitimate part (part

being the operative word) of a non-exec’s role to

help open doors you would not otherwise be able

to open, but if that is all you want them for then

be fair, don’t try to dress it up as a non-exec role,

go out an engage what you really want – a sales

consultant or a part time sales director. Most

non-execs will be willing to use their contact

networks to support a business with which they

are involved, but only where the business values

the wider input of the non-exec and only when

the non-exec is confident that the business

concerned and its products and services are of a

standard that he or she is comfortable to be

promoting.



Do not engage family or friends as your non-exec.

There are all sorts of issues involved when

working with family and friends because the

relationships are not purely at a business level. In

family owned businesses these issues are almost

by definition unavoidable (indeed a significant part

of our business in NXD is helping family owned

businesses deal with these issues more

effectively), but do not compound the problem by

appointing a non-exec who is family or friend. One

of the key aspects of a true non-exec is

independence, and you only get real

independence when you bring in someone you

don’t know.

Do not close your mind to the possibility of

appointing a non-exec from outside of your

business sector – I not saying do it, I am saying

don’t rule it out. This is an interesting topic, I

guess the vast majority of businesses we come

across that want a non-exec are adamant they

want someone who understands their business

and its products, services, market and customer

base intimately. There tends to be a view that they

don’t want to bring someone on board who they

have to effectively train up, they want someone

who can to coin a phrase ‘hit the ground running’

– and in many cases this is absolutely right for the

business concerned. However, depending on the

rationale for bringing a non-exec on board, there

is a counter argument that a non-exec from

outside of the business sector concerned can add

value by asking the stupid questions that no one

else will ask, but that desperately need asking. It

is also a fact that some SMEs primarily need

someone who can help with business process

rather than content; and a further fact that one of

the major advantages of a non-exec is the fresh

perspective that they bring to a business. One

final point, whether or not you end up choosing

someone from within or outside of your sector as

your first non-exec, for those businesses that go

on to grow substantially, when the time is right to

take on a second there becomes a very strong

argument for having one with and one without the

specific sector knowledge/background.

Do not expect your non-exec to take on executive

duties. I know this is stating the obvious, but you

would be amazed how often we come across

organisations seeking to do exactly that. It’s one

thing to be a practical, hands on non-exec which

I am absolutely in favour of and even to end up

on odd occasions ‘doing’ rather than just

‘advising’, but you must remember that the real

value of a non-exec is someone that sits on the

edge of your business, someone who can see

the wood from the trees, and someone who

guides, encourages and motivates the executive

team to get the job done. If what you really want

is a part time executive not a non-executive, then

go out a part time executive.

Do not look for perfection. There is a balance

here, by no means should you just accept

whoever comes along first or is easy to find, but

at the same time if you get overly fussy you will

end up never making the appointment. The fact

of the matter is that you can never be 100%

certain about anyone until you have actually

started working with them and can start to see

what kind of person they really are and what they

can deliver in reality. So, be confident in your

own mind that the person is a good fit and there

are no fundamental ‘chemistry’ issues and don’t

enter into any kind of arrangement that would be

difficult to get out of until you have got to know

the person and their capabilities.

Do not limit yourself to local people. It’s more

important to get the right person than to engage

a non-exec who lives close by. Typically, if you

are looking for someone to help with your

general business process then you should be

able to find someone reasonably local, but if you

are looking for someone with a very specific set

of skills and experience you may have to engage

from further afield. Either way, I repeat, it’s better

to get the right person than minimise travel costs

– and given that a non-exec by definition is only

spending a small amount of time with you, it is

both practical and affordable to make distance a

secondary rather than primary consideration.

To conclude this section of the book, let me detail a

few of the more important qualities that you should

look for in any non-exec: high level of integrity, clear

leadership skills, sound judgement, good listening

and communication skills, an individual who is

intelligent, responsible, flexible and resilient.



Part 4 – What role can I expect my non-exec to play?

To a large degree the role you get your non-exec to play

will be dependent on your specific needs and

circumstances and these will vary from business to

business and may change over time, so what I want to

cover here are areas that you could expect a non-exec to

cover. In reality you can expect your non-exec to have

some involvement in most if not all of these things, but

you will select the ones that are of greatest importance to

shape the role to your needs.

At the highest level I think one can define the role of a

good non-exec as someone who can ensure that the

business has a good and workable strategy backed up by

the resources appropriate for the strategy and with a

business process capable of delivering the strategy. The

non-exec can also be expected to add value as a wise

and confidential sounding board; an independent member

of the board bringing fresh thinking; and an aide to the

executive team.

Let’s look at some of the specific roles in more detail and

for this I am going to use the findings of a survey of 3i-

backed CEOs across Europe. Whilst this was undertaken

back in 2002 and by definition only includes businesses

that have received venture capital investment, I still think

the findings are interesting and relevant.

In answer to the question: “In your company, in which of

the following areas are non-executive directors principally

expected to perform a role?” the following responses were

recorded

78% - Strategy of the business

62% - Board appointments

56% - Remuneration policy

50% - Investor relations

46% - Strategy of the ownership

46% - Financial strategy

45% - Financial controls

34% - Coaching the executives

30% - Fund raising

28% - Risk management

13% - Human Resources policy

12% - Finding new customers

11% - Technical input

5% - Other

A follow up question in the survey was: “What skills,

knowledge and attributes do you principally look for in a

non-executive director?” - it received the following

responses

78% - Independence/willingness to speak their mind

72% - Experience in running a business

45% - Good network of investor/financial contacts

40% - Good network of business/non-financial contacts

40% - Experience in the same business sector as your

company

38% - Interpersonal skills

35% - Pragmatism/ability to find a compromise

30% - Intellect/qualifications

24% - Financial/accounting skills

3% - Other



I think these survey results say just about all that needs to

be said without further comment, they encapsulate the key

roles and attributes of non-execs and certainly helped us

shape the criteria for eligibility of membership of NXD. I

will therefore finish this section with some further words

that describe other possible roles of a non-exec:

counsellor, adviser, devil’s advocate, sounding board,

mentor, supporter, connector, stimulator, tactician,

questioner, substitute, intervener, peacemaker, catalyst,

advocate, expeditor, facilitator, partner, nurturer, script

writer, discipliner, teacher, confidante, challenger, warner,

and more.

Part 5 – What benefits can I expect from a non-exec?

Hopefully having read the book to this point you will know

that the potential benefits are many and varied and

specific benefits will be dependent on the business, its

circumstances and objectives and role(s) you have bought

the non-exec in to fulfil. I can however detail some of the

more common benefits that should be experienced in

most if not all cases:

Financial – frankly unless your non-exec is delivering

some financial benefit well in excess of their cost, you

should be questioning their role in your business.

Sometimes the financial benefit may be in highly tangible,

easily quantifiable, directly attributable things, other times

it may be much more subjective, difficult to calculate and

indirect. Either way you should expect your P&L to be

benefitted by a non-exec not damaged by it.

So, cost reductions and sales increases resulting directly

from advice or introductions from your non-exec are easy

to recognise and quantify, but others like a more focused

and effective strategy and a more co-ordinated

management effort may actually be worth far more but the

value may be hidden in the overall company results and

you will therefore have no alternative but to estimate the

value-add from the non-exec.

Strategic - I cannot think of circumstances where a non-

exec would not be expected to be involved in the strategy

of the company concerned. As the survey above showed

it is the most common role for a non-exec to play and it

makes total sense for the person one step removed from

the day to day running of the business to add real value

in terms of strategic input.

Quite often our non-execs are engaged specifically or

primarily for their ability to help with strategy, and this

tends to be at one of three levels (again as borne out by

the survey results): overall business strategy, ownership

strategy or financial strategy. Developing a good strategy

requires an interactive process, it requires sound

knowledge, good experience, fresh ideas, open

communication and constructive challenge. It’s very

difficult for a business owner to do with his management

team unless he has built a proper board with people

senior and experienced enough and sufficiently

confidential and trustworthy to play their role. The reality

is most business owners either don’t have a clear

strategy or they have one that is purely based on their

own ideas and thoughts.

One of our most recent NXD roles is for a non-exec to

help a digital marketing company develop a strategy for

their business for the next 5 years. The owners (of which

there are 2) have been operating profitably for a number

of years but with no real growth or direction and entirely

within a narrow market sector that leaves them

vulnerable to any changes that may occur in that sector.

Some recent changes scared them into realising they

needed to do something and whilst on this occasion the

changes turned out to be if anything beneficial to them

they know they have to develop a realistic and robust

strategy for their business or one day everything they

have worked so many years for could be lost. This first

step of developing a clear business strategy is now

leading them to consider whether they should start

considering an exit strategy also.



More and more we are getting called into family

businesses to help with succession planning and the

related ownership strategy. Sadly many family businesses

never seek help and independent advice and never really

question the inherent strategy that seems for so many to

be that of passing it on to the next generation – and all too

often this ends in disaster. The failure rate of established

family businesses remains alarmingly high and yet a non-

exec and an accompanying questioning process focusing

on ownership strategy and succession planning could

avert most disasters to the benefit of all concerned. This is

an area I am passionate about and I have a plea that if

you are a family business owner and you are thinking

about or actually approaching the point of handover to the

next generation, please get an independent non-exec

involved, it will pay for itself many times over and may just

prevent yet another total disaster.

Management – MD/CEO/Business Owner is a very lonely

position, I know, I’ve been there. The fact is when you are

at the top of the organisation you often have to deal with

things that you cannot discuss with anyone else in the

business. Sometimes it’s because of confidentiality,

sometimes because it might ‘spook’ others, sometimes

because it directly affects others, whatever the reason you

often end up with no one to chat it through with. One of

the biggest benefits a non-exec can provide is that person

to be able to chat anything through without fear of

repercussion. Often just talking about it to someone helps,

but a non-exec can also provide wise counsel and play

the devil’s advocate role as well as that of a sounding

board.

The benefit a non-exec can bring to the management of a

business is not however restricted to helping the

owner/MD, a non-exec can play a valuable role working

with the whole board/management team. The presence

and input of an independent in the management team

usually automatically brings benefits. In any

board/management team, the individual members of the

team have their own agendas. A good independent non-

exec can help in any or all of the following three ways:

they can help to align agendas, getting the various

individual agendas to point in a similar direction by using

influencing skills, tact and diplomacy; they can help to

emasculate or eliminate personal agendas by introducing

sufficient structure, formality and records to prevent

‘rogue’ agendas from causing havoc; or where all else

fails, they can ‘out’ personal agendas and get them in the

open so at least they can be dealt with even if it gets a bit

‘bloody’. If you look at any successful high profile leader,

they always have a trusted supporter who quietly handles

a lot of the people issues that would otherwise become

damaging – and so it should be with an SME business

leader. This applies even more so to family businesses

where there are a number of family members involved in

the management of the business – the propensity for

personal agendas to run riot is even greater.

Planning – a non-exec should always add value to the

planning process. In some businesses it may be to

instigate an effective planning process in the first place,

in others it may be to improve what’s already there and in

others still where there is already a robust and

professional process in place, it may simply be to add

some input and experience.

Process – many smaller business lack a good basic

business process, by the same token one could argue

some large businesses are too process driven. A non-

exec in an SME should be expected to help build

sufficient process into the daily business routines to

increase efficiency and reduce the risk of serious error or

omission.

Performance – one would normally expect a non-exec to

positively influence performance in the business.

Performance is the output from doing a number of other

things, ultimately the quality and effectiveness of the

strategy, management, planning and process in the

business will feed through into its performance.

Risk – a non-exec can help with the whole issue of risk

both through their own personal experience as well as

through helping to get a process in place which puts ‘risk’

on the agenda. You can split risk into two categories,

fundamental on-going risks to a business that need

continual monitoring, and ad hoc risks that crop up from

time to time which need to be identified and addressed

when they occur. Simple examples of on-going risks are

things like health and safety, human resource issues, in

some businesses even cash flow. Ad hoc risks tend to

come externally (although not exclusively) and can be

things like a competitor’s pricing or some form of

legislative or regulatory change. Members of the

executive management team can often get so absorbed



Story Title to be added here

in the day to day running of the business that they fail to

notice risks until its too late, a non-executive is not

burdened by the day to day worries and will often fulfil the

role on the board of ‘custodian’ of risk.

Image – the final generic benefit of a non-exec that I want

to cover is in the area of image. A good non-exec with

gravitas and good presentation and communication skills

can significantly enhance the image of a small business.

Customers, suppliers and funders will all gain some

comfort and confidence from a clearly senior business

professional being involved with the company. It inherently

improves the standing and image of the company in the

eyes of those around and can be crucial in gaining new

business or improved terms or needed additional financial

facilities. On occasions this benefit can add weight to the

argument for engaging a non-exec with relevant sector

experience – a known heavyweight in a specific sector

can sometimes be the key to gaining a contract with an

important new customer or attracting investment to enable

the next stage of growth.

Part 6 – Conclusion and Summary

I guess now is the time I need to question whether I have

succeeded in my objective of getting you to view non-

execs as potentially relevant and affordable to you? I have

always found it much easier to do this in a face to face

discussion than through the written word – indeed when I

talk it through with people they normally ‘get it’ quite

quickly. My hope is that this e-book will stimulate enough

interest for you to at least drop me an email or give me a

call so that we can explore the relevance to your particular

situation.

Let me therefore try to draw some conclusions and

summarise some of the key points:

I think it is clear that non-executive directors or board

advisors can be relevant to small businesses, indeed they

are likely to be relevant to most small businesses

providing there is a good match between the business and

the individual non-exec.

I think it is also the case that a non-exec can be made

affordable to virtually any PAYE based small business by

using a mix of sensible pricing, limiting the time involved

(especially to begin with) and on occasions using

success based reward for the non-exec.

As far as where one goes to find one and the whole

selection and engagement process, this is where NXD

has opened everything up by providing a matching

service which is normally free for the recipient company,

designed to be as user friendly as possible, and founded

solidly on the principle of creating/adding value to the

company concerned.

Perhaps most important of all, I hope that the sheer size

and variety of the benefits available to small businesses

as a result of engaging a non-exec make this a

compelling proposition to explore further. Few small

businesses have everything ‘buttoned down’, most have

areas of weakness, concern or pain and most have learnt

to live with them rather than deal with them – this is the

opportunity to deal with them.

Biography

15


ABOUT THE AUTHOR

Stephen is the founder and managing director of NXD,

having taken it from an idea back in late 2007, to reality in

late 2009, to its current state of being a significant and

growing national presence in the area of providing non-

executives, part time executives and investing directors

into the SME sector.

NXD is a membership organisation comprised of current

and former Managing Directors and Chief Executives who

are committed to building portfolio careers helping small

and medium sized organisations achieve their goals and

realise their full potential. It is an organisation committed

to creating value rather than exploiting value and is

capable of providing support to any SME in any sector in

the UK and on occasions beyond.

Stephen’s background before NXD was in supply chains

and logistics where he has many years of practical senior

level experience. He has been on the boards of large

retail businesses and managing director of 2 national

logistics companies. He has provided logistics and

supply chain solutions to many leading companies both

in the UK and Europe.

Stephen continues to devote some of his time to the

logistics sector, but through his activities with NXD has

really enjoyed working across diverse sectors with small

and medium sized organisations generally and especially

with second, third and fourth generation family owned

businesses.

To contact Stephen – [email protected]

Stephen Barter Founder & Managing Director of NXD

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