New research from Korn/Ferry shows that the role of the Non-Executive Director (NED) is undergoing a fundamental and rapid evolution in response to the demands of the post-crash economy and ever higher standards of corporate governance.
The research identifies a significant increase in the requirements of the role over the last seven years, with a greater time commitment, a broader skillset and a deeper technical capability, combining to produce an expanded and more demanding brief. Recent events highlight these trends, with 2012’s “Shareholder Spring” demonstrating clearly the increasing focus on stewardship by investors and the consequent growing significance of NED responsibilities.
This evolution of the role has important implications for the number of non-executive roles an individual can take on – shrinking the available talent pool significantly, having a material impact on board composition and heightening the challenge of creating more diverse boards.
The report, entitled “What Makes an Exceptional Independent Non-Executive Director?” draws on detailed interviews with approximately 50 leading Chairmen, CEOs and Board members. This latest study follows up and builds on a similar study undertaken in 2005, which provides the baseline for comparison.
The study illustrates that while the core characteristics of the NED – independence, ability to challenge, and excellent communication skills – are still paramount, they are no longer sufficient in isolation. As observed by John Peace, Chairman of Standard Chartered, “The basics of true independence and integrity are still of fundamental importance but it is what we have layered on top that has made the job so challenging and time-consuming today.”
Broader and deeper capabilities in risk, numeracy/finance and technology have moved swiftly up the priority list, a trend noted by Tim Stevenson, Chairman of Johnson Matthey, “Financial literacy and economic literacy are more important than ever in today’s climate.” Against a background of increasing regulation and improved governance, these trends are likely only to accelerate.
These new responsibilities have resulted in a fundamental shift in the requirements of the NED role. “Ten years ago, it was more about being in a select group – joining an exclusive club – whereas now, the importance to the markets of corporate governance means that it’s a serious job.” Ken Olisa, Chairman of Restoration Partners.
The inevitable impact on the time required to carry out the role raises an important questions about remuneration: Is it realistic to expect any NED to shoulder the added responsibility of the job without added compensation? At the same time pressure and criticism from the media and regulators on corporate pay have companies feeling that their hands are tied.
Indeed, with a change of such magnitude, there are calls for a new title to recognise the increasing responsibilities of the role, a case put most persuasively by Jim Leng, former Chairman of Corus Group, who says: “The NED title is a misnomer; it describes what they don’t do! Their title should instead reflect what they are there for, as an ‘Independent Director’.”
Richard Emerton, Head of Korn/Ferry’s Board Practice in EMEA said: “We last looked at this area in 2005 and the evolution of the role has been swift and broad-ranging. While Boards still prize traditional NED qualities such as independence and experience, the additional skills and responsibilities identified in this new report are significant and striking. With far greater technical demands in areas such as risk, finance and technology being layered on, it is clear that the days of gifted amateur are long gone.
“Furthermore, with each non-executive directorship now requiring a significantly greater commitment of time and energy, the future for individual NEDs will be fewer, more involved roles. This change poses important questions about the size of the NED talent pool, with major implications for the NED recruitment process and Board composition, and potentially poses an even greater challenge to creating more diverse boards. The need for high quality NEDs has never been greater and selection, training and remuneration of NEDs have become critical issues for all Boards.”
