How to Excel as a Non-Executive Director (NED)
Presented to the ICAEW Corporate Governance Community
By David Levenson and Siobhán Cahalan
June 16th 2022
Introduction
This paper explores how to prepare for being on a board and what you will discover when you arrive in the boardroom of an enterprise[1].
Being a director isn’t straightforward. There is a diversity of personalities on boards, a mountain of enterprise information to learn and plenty more to absorb about how you as a board member impact on people and events outside the boardroom.
The mindset for an effective director requires curiosity, enthusiasm, clarity of thought, awareness of self and appreciation of others. Being a director is a great opportunity to acquire new skills and hone your professional and personal development.
What are your greatest challenges as a director?
Absence of formal induction into the role? A non-existent job specification? Unwelcoming peers? Challenging peer personalities? Being unclear how to be a board ambassador? What challenges did you encounter as you transitioned into the role of director? As a new director on the board, how did you feel?
As time went on, what challenges remained? What additional challenges arose? How did your feelings change? Did you grow in confidence? Did you grow in pride knowing you represent an ethical, transparent enterprise which is governed with integrity?
What questions have you not asked? What concerns have you not voiced to anyone?
Do you feel heard as a member of the board? Do you feel the induction gave you a solid footing with which to begin in the role? With whom do you communicate most? Why? With whom do you communicate least? Why? Do you feel each board member has an equal voice?
The Board and the Stakeholders
The board’s responsibilities include establishing the vision, setting the strategy, delegating to management, defining the group budget, being accountable to shareholders, setting the risk appetite and being aware of responsibilities towards stakeholders.
Non-executive directors bring an independent, wide-lensed strategic view while offering constructive challenge, guidance and oversight.
As a director, you need to be aware of the vision and strategy of the enterprise. It is crucial to be mindful of them at all times and always refer to them when making decisions and taking actions.
When we become engaged as a director, our lens can become narrow if we focus on immediate communications, on relationships with peers, and become engulfed in responsibilities and pressures. As a board member, it is vital to keep a wide lens and a broad systemic outlook.
In order to keep a wide lens and a broad systemic outlook, it is imperative to be mindful of the potential stakeholders of the enterprise.
Broadly speaking, a stakeholder is someone who can influence something or be impacted by something. And that can happen either directly or indirectly.
If we look at some of the possible stakeholders of a board, we have the board members, the corporate officers, the employees, the consumers, the shareholders, investors and regulators. Business partners, suppliers, competitors and government bodies can influence the decisions of the enterprise or be impacted by actions taken.
Think about the metaphor of the river. A stakeholder can be upstream or downstream. The upstream stakeholders are those who bring the product or service to the market – eg designers, suppliers, operators including staff, funders and investors. Examples of downstream stakeholders are consumers who use the product or service and regulators who monitor results and promote good practice.
Question: Is the board you serve only focussed on upstream stakeholders? Does it pay sufficient attention to its downstream stakeholders?
The actions of the enterprise can have consequences – good and bad – for several stakeholders in the supply chain, so its impact can be far-reaching.
What Makes a Director Excel?
The basic expectations of a director on a board are to provide oversight, to be independent, to bring challenge, to comply with rules and codes, to turn up and to be respectful.
However, what makes a director excel?
It is crucial he/she provides oversight, but what makes them great is to provide insight to the other members of the board based on their wide experience and specialist knowledge.
As a baseline, the director will be engaged because of his/her independence. What is vital is that the director exercises independence and maintains this independence for the tenure of their post.
F. Scott Fitzgerald famously wrote: “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function”. An independent-thinking director must be able to understand an issue from another person’s alternative perspective.
The challenge offered to the other directors, independent directors and chairman must be constructive. Being challenging for the sake of it does not drive the goals of the enterprise forward. It is crucial to bring wisdom and sound judgement always keeping the vision and the integrity of the enterprise top of mind.
While complying with rules and codes is a must, it is essential to model the values which have been set by the enterprise. It is good practice to review the values of the enterprise and review your own individual values and see where they align, and which ones do you struggle with. Compromising one’s personal values to accommodate the enterprise’s values can lead to dissonance and disillusionment.
Turn up and be on time for board meetings and committee meetings! While there, be visible, interested, engaged and present. It is amazing how many board members think it is OK to scroll their iPhone while in a board meeting. Try to attend events and take opportunities to meet and talk with staff and other stakeholders when they arise.
Which brings us to the last point, be respectful. Respectful of colleagues, especially of the full-time directors of the enterprise who take care of the day-to-day running and its associated challenges. Be affirming in your presence through bringing support, understanding and confidence without being ego driven. When you observe behaviours in the boardroom that you do not consider acceptable be prepared to speak up and out.
Ethical Behaviour in the Boardroom
Know who you are and know the strengths you bring to the role. Be consistent with demonstrating those strengths being a solid anchor for the board to rely upon. Keep your own record of how you arrived at the positions you adopted when the board was making decisions.
Test decisions against ethos and values. In making good decisions, ask the questions “Would a colleague understand this decision?” “Would I be happy if I were a customer/service user?”[2]
You are engaged in the role as an independent individual. “Group Think” is the clearest example of behaviour that can compromise your independence – it is the antithesis of good governance. An example is when the board defers to an expert on the board, e.g. financial. It is imperative not to fall in with group think, to collude or take sides. Be independent, speak openly and raise concerns in a transparent manner.
Making allies is part of the normal function of boards. You may have strong views on a particular issue which you would like other board members to support. Beware of alliances on single issues descending into cliques and factions, both as a participant and as an onlooker. If you notice cliques forming, speak openly about it to the group.
Being an Ambassador Outside the Boardroom
Examples of how to be a good ambassador for the board are:
- Be proud of the enterprise you serve
- Always say “we”. Know what “we” are doing/have done…and be willing to talk about it
- Make sure your actions reflect well on the enterprise
- Be generous; share your experience and knowledge
- Adhere absolutely to collective responsibility and “Chatham House rules”
- Never be negative in public
Building your Governance Coaching Skills
In keeping with good governance practices in the long-term best interests of the enterprise and its stakeholders, the success of a director will be underpinned by his/her characteristics and experience. The former is reflected in his/her values and behaviours and the latter in knowledge of the business environment.
It is useful to keep five elements in mind which contribute to an effective corporate governance system. The five elements are:
- Values: demonstrating integrity, independent thinking, and transparency
- Management: ensuring day-to-day operations are in line with the vision
- Leadership: communicating and collaborating effectively
- Processes and systems: ensuring “the enterprise manages the technology instead of the technology managing the enterprise”
- Documentation: driving and supporting good governance
Exhibiting good leadership traits is key such as the ability to make timely decisions, being innovative and reliable as well as setting the vision and following through. Example of values that underpin such traits are integrity, independent thinking, and transparency.
Everyone on the board needs to think like a leader – a good leader! Communication has a large role to play in engaging the dedication and loyalty of employees as well as preserving a trustworthy relationship with external stakeholders. Once the vision is defined, the ability to clearly articulate and communicate this to stakeholders is key.
Internal coaching conversations support role clarity, transparency of succession planning as well as empowering the performance of everyone in the enterprise.
Supporting the board and the chair as a director can range from building awareness of the enterprise’s current governance practices, to recognising and closing gaps, and prompting the development of leadership traits, including coaching skills, which support building cultures of effective governance.
Coaching skills can help to ethically influence executive and non-executive colleagues, aid with self-coaching helping to increase awareness and clarity, improve transparency of day-to-day communication, and effectiveness in board meetings.
Keeping a curious, open, and independent mind supports a continuous vigilance of the values, vision and purpose of the enterprise. Asking questions such as “How do my values/the values of the enterprise contribute to sustained appropriate actions and behaviour?” and “How do I/the enterprise keep consistent focus on the long-term strategy while operating day-to-day?” and through using the GOVERN™ model.
GOVERN™ Model
The GOVERN model may be used to support building awareness of the current governance culture and what is needed to close the gaps to establish a best practice governance environment. Understanding the value of these enhanced practices, along with the return on investment will refine the articulation and execution of the vision to the diverse stakeholders.
Goal. What is the goal?
e.g. to implement a culture of effective governance in the enterprise.
Opportunities. What are the opportunities available?
e.g. resources, support groups, committees. What is already in place? What can be strengthened? How can the skill set composition on the board be utilised for best effect?
Value. What additional value will this bring to the enterprise?
e.g. a better defined strategy, a more robust operational environment, an alignment of the vision with the operational reality, an alignment of values with behaviour, an elimination of overlapping tasks freeing up resources.
Execution. What action will the individual take?
e.g. setting up an advisory board, managing succession planning, developing delegation skills, disbanding futile committees, setting up constructive committees, clearly outlining the allocation of roles and responsibilities.
Return-on-investment (ROI). How will ROI be measured?
e.g. greater stakeholder satisfaction, leaner processes, benefits of automation, less stress as roles are more clearly defined and healthy borders are put in place.
Next steps. What are the next steps?
e.g. milestones, deadlines, actions.
The pursuit is always to add value for the enterprise – and its stakeholders. How can we support the enterprise and help it to move positively forward? Courageously using coaching skills and promoting an environment of trust provides a safe space to express fears and concerns, as well as an opportunity to air innovative ideas and possibilities, to evaluate them and of course, to make them happen.
Biographies
David is an executive and career strategy coach, and an expert in governance and leadership development. He founded Coaching Futures in 2016 with the aim of transforming people’s lives, careers and goals. He works with senior professionals and financial executives and executive and non-executive boards as a coach and facilitator. David has been a chartered accountant since 1984. He worked in senior finance roles in the retail and property industries before moving into social housing in 1992 as a CFO. He has served as a director for more than twenty years and is currently on the boards of an NHS Trust and a provider of homes for people with long term disabilities.
David creates and delivers governance training for the Academy of ICAEW programmes “Board Readiness” and “The High Performing Director”. He is an advocate for diversity and inclusion from the front line to the boardroom, a frequent public speaker and contributor of articles and blogs on leadership, diversity and new technology.
Siobhán is an Executive Governance coach. She supports executives to lead and manage in a way that strengthens best practice governance.
Siobhán has over 20 years’ experience in designing, implementing, and managing global processes and leading global teams. She has contributed to the positive achievements of several international enterprises including Reed Elsevier in the Netherlands, The Wall Street Journal Europe in Belgium and Deutsche Bank in Germany and Wall Street NYC.
She is an EMCC Global accredited executive coach and qualified coaching supervisor encouraging best practice governance.
Copyright © 2022. Permission may be sought directly from the authors.
[1] We use enterprise here to refer to any corporate body, whether private, public or not-for profit.
[2] These are among the questions posed in GSK’s ethical framework for decision making.