For start-ups, the presence of a prestigious industry heavyweight can open doors, helping the founder win new customers and backers. For these and for more established firms alike, NEDs can also serve as a much-valued voice of experience.
Perhaps they’re a veteran CEO or founder themselves and have experienced the growing pains of a dynamic business, or its transition to another stage of maturity. If they’re good, they’ll use this experience not to suggest (‘do/don’t do what I did’) but to get the leadership team thinking.
For the same reason it’s sometimes very helpful for a non-exec simply to have a different background from the CEO, coming from another industry perhaps, opening their eyes to ideas they wouldn’t have considered or to challenge assumptions. The best outsiders on a board won’t be afraid to question things that seem obvious to everyone else.
This relates to yet another value that an NED can bring: to be able to see the wood for the trees. Because they aren’t in the business day to day, they can focus on the big picture – the vision and purpose – and ideally dispassionately assess where you may have lost your way.
The choice of NEDs is therefore crucial, not only in terms of their individual qualities, but also how they function together as a group and whether they’re a good fit with your culture. However, there is more to effective boards than just team selection and composition.
For your dream team of challenging, creative, perspicacious non-execs to maximise their value, there also needs to be the right relationship and the right expectations in place between them and the executive directors.
A NED is only as useful as you’re willing to let them be. There’s no point appointing a great board director who challenges your assumptions and asks uncomfortable questions if your response is to try to ignore or sideline them.
If you start seeing them as an irritation that drops in every month, not only will you get no value from them but ultimately, they will leave.
On the other hand, it’s not in anyone’s interests for the board to be too pally with or uncritical of the leader. Look what happened at Theranos or Enron, when the board didn’t apply sufficient scepticism to what the CEO was doing.
For their part, leaders should see NEDs as necessary and productive support, and acknowledge that good governance rests on certain principles and well-established practices for a reason.
The board should have a solid relationship with the CEO, with clear boundaries and expectations, but also cultivate links to other team members, so that they have other ways of learning about what’s happening in the business.
Certain important issues should be the responsibilities of particular board members or committees, to avoid them falling through the cracks.
Non-execs’ remit should be clear: to remain focused on the big picture, not to get involved in the detail (that’s your job). And their responsibility should clearly be to the shareholders (or stakeholders if you’re a B corp), not to the executive, which is of course the whole point of having governance in the first place.
Follow these essential principles and lean in to how non-execs can add value, and that value will come. It may not always be the most glamorous asset for a growing business, but a strong board can nonetheless be a sturdy foundation.