How to be a non-executive director

With its demand for sharp strategic insights, a non-executive directorship is an ideal role for treasurers to consider, Charlotte Morgan tells Matt Packer

In another of our articles for August 2018, treasurer Charlotte Morgan explains how, in the course of her career, she became a non-executive director (NED) with a portfolio of different board roles.

Here, she sets out the qualities and perspectives that are most crucial for fulfilling an NED’s range of responsibilities…

What should an established professional do to lay the groundwork for becoming an NED?

I would say to anybody, build up your experience by doing any committee work you get invited to do. For example, you could serve as a pension trustee, or a charity trustee, or get involved with a professional association such as the ACT or the Institute of Chartered Accountants in England and Wales. They’re very keen to involve volunteers.

Just doing that volunteering will give you a sense of how to balance your input with the responsibilities of the executive team, who have the task of all the day-to-day running of the organisation.

You will pick up experience of how to make a contribution in a constructive and effective way, while respecting the executive team’s closer knowledge of the organisation.

Which qualities or attitudes do you consider particularly important?

You need to be a good listener, and have a strategic perspective. There’s no question that you operate in a different way as an NED from how the executive operates. Your responsibilities are to challenge and influence; you’re not there to hold the steering wheel. On that basis, it certainly helps to be objective.

Clearly, you have a significant, shaping influence on what the company does, together with why and how it does it. You’re not in any way a bystander or a consultant. You have important statutory responsibilities, so you have to remain closely engaged with strategic discussions, the culture of the organisation and regulatory compliance, and make sure that you’re satisfied with the overall way that things are being done.

But at the same time, you have to allow the executives to do their job and engage their trust that you are acting from a governance perspective, not seeking to intrude on their turf.

So, you may want to ask the executive team what they are doing to ensure the organisation is in compliance with a particular piece of legislation. But you need to make it clear you are not trying to take over the project or tell them how to do it. You’re doing it from the perspective of satisfying yourself – and the rest of the board – that the matter is being dealt with in a conscientious and ethical way.

So it’s almost like a quality-control relationship?

No, not really – it’s important to make a distinction, here.

Quality control is very detailed. People will go in armed with checklists of things that they are looking for, with a view to writing up thorough reports. What we are involved with is governance: ensuring that there is strong, robust and appropriate stewardship across the whole organisation.

How many organisations’ boards can you realistically sit on without becoming overburdened?

There’s no right answer to this one, because some boards are more demanding than others. If you’re on the board of HSBC, for example, that’s likely to take more time than being on the board of a local sailing club.

I currently have five non-executive roles, which I think works well. But I know people who do a few more than that, and they manage absolutely fine.

It may depend on how many jurisdictions your company operates in. If you’re on the board of a firm that’s reporting in six different markets, or quoted on different exchanges and you’re the chair of the audit committee, you’re likely to have a much busier job and need to do more travelling than if you’re only quoted in one place and reporting in one market.

To what extent do you think that independent NEDs could lose that independence if they sit on the board of one company for a long time?

The Financial Reporting Council’s guidance is that nine years is the maximum term of service, after which directors can no longer be regarded as independent, and I agree with that assessment.

I think it’s important to rotate director roles. The whole point of being a director is that you bring fresh thinking to the company and new ideas. I think it’s good for a board to have regular changes in composition, so it can continue to generate new energy and perspectives – and ensure it won’t become a venue in which people settle into an established way of operating.

A board is a team, but not in the same way that an executive is. In an executive team, people typically have different roles assigned to them, and in most cases they form a hierarchy. In a board, every director has exactly the same responsibilities – with one or two having additional responsibilities if they’re also committee chairs. So it’s not a hierarchy – or at any rate, it shouldn’t be. But if you get the same five or six people working together for a long time on a board without any change in its composition, then a hierarchy will develop, just because of how human psychology works. And that’s why there should be regular rotation.

Without that refreshment, then, could you fall into a “This is the way we’re doing things because this is the way we’ve always done things” mentality?

Very much so. I’ve had people say to me when I’ve raised issues, “We tried that five years ago and it didn’t work.” I’ve had to go back to them and say politely, “I appreciate that and we must learn from those experiences – but circumstances have changed. We’re facing different challenges in our market, and I believe we should revisit this issue.”

So that would be a situation in which to take a “That was then, this is now” line?

Yes – without wanting to be dismissive in any way. Clearly, it’s appropriate to consider lessons of the past. But when people make those blanket statements in a voice of “I’m not interested in that suggestion because it failed before”, it’s not terribly constructive.

I think a more helpful approach would be, “That’s a very interesting point, Charlotte – bearing in mind that five years ago we were doing X. Nevertheless, it’s absolutely right to reconsider the issue under the current circumstances.”

But we all know that’s not how people think, is it? We’ve all had that experience when we’ve started a new job and hear lots of people say, “Oh, we can’t do that.”

So, to answer your earlier question directly, I think that after five or six years, it’s time to consider moving on. Many people would disagree, but that’s my personal view.

Why should corporate treasurers think about becoming NEDs?

Treasurers are well equipped to become NEDs because the treasury function is not just a technical one; it involves the strategy of the organisation. Treasurers are looking at how the business should be structured and funded. We’re looking at relations with shareholders and debt holders. We’re looking at M&As. We’re also reviewing financial performance, and deciding what actions may need to be taken in response to changes in performance.

All of this is extremely relevant to the work of a board. So I do think it’s important that treasurers should think about taking on non-executive roles. I appreciate that not everyone has time to step on to the board of a listed company, but people can add value in other organisations, large or small.

The one piece of advice I would give is to choose a business or organisation that you are passionate about. You will do a better job, and you will enjoy it more.

About the author

Matt Packer is a freelance business, finance and leadership journalist

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