News

June 24, 2011

Business owners lack confidence in non-execs

More than half of company owners lack confidence in their non-executive directors, research by private bank Coutts & Co has revealed.

The survey of 141 entrepreneurs found that 56 per cent were sceptical about the ability of a non-executive director (NED) to improve business performance, while a third (33 per cent) admitted they had had a poor experience of using NEDs in the past.

The survey also found that more than half felt that non-executive contracts should be limited and that individuals must not remain on the board if they ceased to add value.

Andrew Haigh, managing partner for the entrepreneurs client group at Coutts, said NEDs were typically taken on to fill skill gaps and add an independent perspective to a business. “However, it is important that they are brought on board for the right reasons and that there are clear parameters in terms of what is expected,” he said.

The Institute of Directors head of corporate governance Roger Barker said NEDs could provide small firms with valuable advice and a fresh perspective, as well as reassure external finance providers such as banks that the business was being run effectively.

But he said there was often a clash of expectation between the two parties. “Smaller firms usually require somebody who can add real value to the business, with clear input and expertise, not just an individual sitting on the board,” said Barker. “Non-executive directors who have come from a big listed organisation might be more used to a monitoring role, rather than being hands-on.”

Barker said it could also be difficult for business owners to bring in external expertise. “Particularly when that individual challenges their decision making,” he said. “The key is to be transparent about objectives and expectations of performance right from the start.”

• For more information on the board of directors visit the Law Donut website