Helping non-executive directors to better challenge and guide their boards

As previously mentioned, today’s NEDs are expected to make insightful contributions across a wider range of topics and to respond to greater uncertainty within the macroeconomic and geopolitical landscape. They need to be able to do all this while treading a fine governance line, being careful to retain their independence and not straying into the role of operational management. Little wonder, perhaps, that 78% of those surveyed say the NED role has become more complex and time-consuming in recent years.

How are NEDs managing this new reality? Firstly, by being more realistic about the time commitment they can set aside to do the role justice, as one NED explained: “If you are not careful you can find yourself very stretched. People will get told it is 20 or 30 days a year and it is clearly more than that”.

It is not just the length of time NEDs need to build into their schedules — it is also the flexibility to respond to time-sensitive issues and be on hand to accommodate meetings at short notice. One NED said: “If things happen such as a deal or an issue with management then you have got to be flexible and able to respond quickly.” The increasingly virtual nature of meetings during COVID-19 reduces the travel time required by physical meetings but can also increase their frequency and immediacy, making it harder for NEDs to manage and allocate their time.

A moral compass in an ever-changing world  

In the decade or so since the financial crisis, the breakdown in trust between business and society has been well documented. Trust has also been at the forefront of customers’ minds as they relied on companies’ products and services during the COVID-19 pandemic. Key to restoring and maintaining trust is the need for businesses to satisfy a wide range of stakeholders that goes beyond financial investors. Expectations have evolved in light of the COVID-19 pandemic as investors increasingly look at how companies are addressing environmental, social and governance (ESG) factors in their operations. As businesses reshape beyond COVID-19, they must also ensure that they remain relevant in the future for all our stakeholders.

As with many of the key corporate challenges of our times, NEDs are at the centre of this, with more than half of those surveyed (54%) agreeing that NEDs should act as a ‘moral compass’ to ensure that their organisation does what is right by its various stakeholder groups, including shareholders, employees and other external partners.

The effect of acting as a ‘moral compass’ is to bind up the organisation’s reputation with the personal reputation of the NEDs on its board. 57% of NEDs we surveyed say they are worried about the impact on their personal reputation if the organisation faces a significant corporate crisis.

Reasons for taking on the NED role

Experienced executives choose to become NEDs for a variety of reasons. The role doesn’t come without its challenges, but it is clearly a rewarding one for many. A third (32%) of NEDs surveyed by EY say their main motivation for doing the role is to take on a fresh intellectual and personal challenge, either as a complement to a current executive leadership role or as part of a portfolio of NED roles to stay busy after retiring from a full-time executive career.

NEDs are motivated by a desire to stay connected in the business world, and to put the skills and experience learned throughout their executive career to good use in a new context. Those who balance a NED role with a full-time position say taking on the additional responsibility gives them a fresh appreciation of board dynamics and new insights into how to be more effective in their day-to-day C-suite role.

One NED, who has a portfolio of non-executive roles in a handful of organisations spanning multiple industry sectors, summed up the risk-reward balance as follows: “The opportunity to get involved in some of the largest global businesses, as a NED both in the UK and overseas, is very rewarding. I don’t see a large risk associated with being on a board if the board does its job properly. As an individual I do my job properly, and I only choose to sit on boards which have very clear governance frameworks in place”.

What has been your motivation for taking on a NED role? In order of importance, please rank the top three factors.

As technological and market change accelerates so does the need for specialist insight and fresh thinking.

An increasingly demanding skill set

As their roles become more demanding, NEDs are increasingly focusing on the skills and capabilities that they require in order to meet the challenges ahead. Many of our respondents talked of the need to offer a constructive challenge to the executive team: “You have to be prepared to ask questions that might not be comfortable to ask, but do it in a way that brings your board colleagues and the executives with you”. 

Have you done any of the following to enhance your knowledge and skills in relation to your NED role? 

NEDs are proactively seeking a range of learning and development opportunities to enhance their knowledge and personal effectiveness.

This ability to ask better questions clearly requires not only a good understanding of all the issues impacting the organisation, but also the soft skills needed to engage successfully with fellow executives. While boards already do much to support incoming NEDs, such as structured inductions programmes led by the board chair, our research reveals that NEDs frequently and proactively seek out opportunities to expand their own learning and development. For example, 41% of NEDs say they have completed a training course in a specialist subject area since taking on a NED role.

Alongside seeking out regular training and development opportunities, a majority of NEDs (57%) say they have joined a formal NED programme run by an advisory firm, such as EY’s Centre for Board Matters. Others have joined one of the independent programmes on offer run by organisations such as the Non-Executive Directors’ Association or the Financial Times. Structured NED programmes provide not only the opportunity to network and learn from peers, but also provide regular exposure to leading industry thinking and access to market opinion formers and respected commentators. Other ways to plug gaps in their knowledge include coaching or mentoring and professional certification (adopted by 24% and 14% of NEDs in our survey respectively).

Whatever the approach taken to filling gaps in their knowledge, NEDs are clear that they are looking for opportunities that will provide new angles on topics and give them fresh perspectives on the questions to ask in the boardroom.

The need for fresh perspectives

NEDs already play a vital role in bringing fresh thinking and experiences into the boardroom and in challenging perceived wisdom but, as technological and market change accelerates even more rapidly due to COVID-19, there is a need for fresh and more diverse thinking. 

In some instances, this can be achieved by inviting people with experiences across different industry sectors and multiple boards to take on non-executive roles within a new sector. One of the senior NEDs agrees: “I am a big supporter of being on a number of boards for this reason: you get to see things from multiple perspectives”.

In order to further broaden their perspective, some boards are now actively targeting younger NEDs or those who come from a wider variety of backgrounds with more specialist knowledge. One interviewee with nearly two decades of experience in NED roles explains how the composition of boards has changed significantly throughout her time in post: “Today I see more people getting involved on boards at a younger age. I think that is a very good development. People are now being actively recruited for boards who are IT and systems literate or who have a lot of experience with the customer and customer experience. They know the right questions to ask of the executive team to address these new organisational priorities”.

EY also spoke with several up-and-coming NEDs who believe that more needs to be done to cultivate participation from a younger cohort of NEDs. One way of addressing this experience gap is through initiating a shadow board. These boards comprising younger members with a more diverse range of backgrounds. They receive and discuss the same board papers as the organisation’s main executive board and are asked to come up with creative solutions to the strategic challenges facing the organisation. This can be an effective channel to capture fresh thinking without adding lots of new seats around the board table and provides a helpful steppingstone for early career professionals to take on a quasi-NED role.

Of course, the need to broaden perspectives and reflect society more closely goes well beyond more youthful cohorts. Gender and ethnic diversity remain major challenges for boards, with the latest Hampton-Alexander review into female board representation and the Parker Review on ethnic board representation both being published recently. We expect this to become an increasingly important topic for boards in 2020 and beyond.