NEDs forced to become 'quasi-executives'
Jenny Roper, June 18, 2015
Non-executive directors are increasingly being expected to take on an executive level of responsibility
Boards are increasingly pushing non-executive directors (NEDs) into an executive level of responsibility, leaving them to exact a careful balance between impartiality and increased closeness to the business, a report from board effectiveness consultancy Advanced Boardroom Excellence has found.
Walking the Tightrope of Board Responsibility found that what is expected of NEDs now far outstrips NED remuneration, and a heightened environment of board governance regulation is exerting more pressure on NEDs to scrutinise, for example, company remuneration policies more closely.
“We really are in a situation where the landscape is changing. It really is a tightrope people are walking as they’re being pushed into quasi-executive roles,” said chairman of Advanced Boardroom Excellence Helen Pitcher. “Because the regulators are pushing the agenda so much, that then flows into other FTSE companies. So there’s an expectation that NEDs will know so much more about the business and where the key risks are for example.”
She added: “As we know from many of the scandals, if we don’t have the right remuneration packages it can create negative attention. So NEDs have to get much closer to the business to find out those remuneration plans.”
Pitcher explained that this means NEDs now often struggle to remain impartial advisers to the board, and that those keen to become NEDs can be put off by the reputational risk of being more closely associated with any potential media scrutiny.
Pitcher reported that, when the induction process, chairing of committees and extra support in times of crisis is taken into account, NEDs are now spending nearer to 50 to 60 days a year on NED roles rather than the recommended 30.
She said: “How easy is it to remain independent in terms of contribution while giving more time?”
Regarding remuneration for NEDs David Dumeresque, partner at executive search firm Tyzack, which partnered on the report, said: “The current norm is £30,000 to £35,000 but respondents to the report thought this should be nearer £50,000. If you look at what the rate of an audit partner is and then worked out how many days the NED has put in, you might get a rather different figure to £30,000.”
The Walking the Tightrope report also explored what companies are now looking for in NEDs. It found that the diversity agenda, while positive in many ways, has heightened a climate of quasi-executive NEDs. This is because NED recruitment is now a more formal process of ensuring a very specific NED skillset mix, which is designed to ensure ‘cognitive diversity’ on boards.
“Now people are going to start really constructing the board in the same way they would a management team,” reported Dumeresque. “It has moved from what has been a much lighter-touch process into a defined NED search.”