Are non-executives non-essential?

Received wisdom about the role of non-executive directors is being challenged, writes Alex Macpherson of Octopus Ventures.

Received wisdom about the role of non-executive directors is being challenged, writes Alex Macpherson, CEO of London-based investor Octopus Ventures.

Traditional thinking about the role of a non-executive director tends towards the belief that a medium to long-term commitment from a person will bring the best results for a company. But as the economic recovery begins to take shape and the rules of commerce are reformulated, there are some who question this view and who have begun exploring new ways for smaller companies to engage those with specific expertise and experience.

Few can doubt that experienced, highly skilled, and effective individuals can engage with a smaller company and bring immediate benefit. Where many come unstuck however, is in defining the engagement and relationship between this person and a company.

Smaller companies require flexibility. Their needs change from one trimester to the next. A CEO needs to draw on specialist experience and expertise quickly, effectively and only for so long as he requires it. There is no room for periodic observers. Successful teams are lean, with a singular focus and complementary skill-sets.

More and more frequently CEOs of smaller companies recognise that it is not appropriate to follow the paths of larger UK plcs by appointing rafts of independent non-executive directors on medium to long term contracts. This longer, sustained relationship between a company and an individual, where diminishing returns are all too frequent, now jars awkwardly with the commitment, sacrifice and constant review of the wider executive team.

Recognising this, some have changed the language of appointment from non-executive director to one of consultant. This simple change of title significantly shifts the onus to a more professional, defined, measurable relationship: one where the role is made clear with objectives, timeframes - and exit. The starting point is now, "What value will my stakeholders derive from this relationship?"

As the business develops its needs will change. Typically in the earlier stages of development the company is likely to value someone who can open the door to bigger and better customers. As the sales team builds this reliance may diminish and a requirement to assist with other areas of the business (such as building out the team, creating appropriate employee incentives; and implementing corporate governance frameworks). These needs will depend much on the industry, sector and geographical reach of the business and it is incumbent upon the CEO to match the needs of the business with the correct skill-sets.

There are of course many exceptions to these observations: some highly experienced individuals bring immense value simply by the act of agreeing to join you. Such kudos is a rare commodity and can transform your business if introduced at the right time. Likewise there are exceptional non-executives who have a depth and broadness of skill-set that can inform and guide companies through every stage of their evolution. Such individuals should be embraced by companies in whatever form the person requires.

Ultimately then, it appears that the mould is there to be broken: companies should bring fresh thinking as to how and when they engage others; to consider how the engagement with these individuals will evolve over time; and to ensure that each appointment helps the team to realise its potential.