Contact: John Warchus; Clarkslegal (Reading, England)
“Non-Executive directors are a resource seriously under utilized by small and medium sized businesses… There is evidence that businesses that access and exploit non-executive directors as an intellectual resources perform better in the long run than businesses that do not. In the past, non-executive directors have been perceived as only being suitable for larger companies. Increasingly however, small and medium sized businesses are realizing the possibilities”. Invest Northern Ireland
Many ambitious SMEs are unaware of the potential value a Non-Executive Director (NED) can bring to their business.
During our careers we have worked for many fast-growth successful companies that used NEDs. Professional investors insist that the board of directors include NEDs. These NEDs are often chosen by the investor, i.e. they are people they trust to do a great job and part of their role is to protect the interests of the investor. However alongside such NEDs there are often truly independent NEDs.
If professional investors use the services of NEDs then there must be very good reasons for doing so. We summarise some of these reasons below:
- Once a NED is appointed he/she is legally bound to serve the interests of the company. We tend to say "your goals become our goals, and your problems become our problems ", i.e. NEDs are on your side!
- NEDs are experienced and usually successful business people who have been in your position; they understand the stresses and strains of running a business and have seen and overcome many of the problems business owners are likely to face. This type of experience can be invaluable, can improve and speed up your decision making process, and it`s not obtained by just reading a business book
- NEDs challenge your thinking, they make sure your thinking is robust and hence increase the probability of success. This process can sometimes be tough for the MD to take (especially if he/she hasn’t been accountable to anyone for a while), but remember the NED is on your side and he/she is trying to make the company more successful. Also the process of analysis and questioning by the NED can be stimulating; two heads are usually better than one, especially when one of them is independent
- NEDs are usually very well connected, and once appointed they network on your behalf, and can sometimes introduce you to new clients, other professionals, or even potential partners
- NEDs are more useful when the directors of the company are open-minded to change. Being able to accept constructive criticism and make changes where appropriate will enable the directors to get the maximum value from the relationship.
“In these tough times, it’s important that you take advantage of every opportunity to keep ahead in your market. So why not add experience at senior level with a Non-Executive director”. Institute of Directors
If you are thinking of adding further business expertise to your company or appointing a Non-Executive Director please feel free to contact Nick Richards on 07774 189008 nickrichards@laudis.co.uk or John Panczak on 07775 626366 johnpanczak@laudis.co.uk or visit LAUDIS Business Advisors at www.laudis.co.uk
For advice on legal/contractual issues relating to Non-Executive Directors, please contact John Warchus or your usual contact at Clarkslegal LLP.
Further Information
This fact sheet is not intended to be a full summary of the law and advice should be sought on individual situations.
Clarkslegal LLP is a limited liability partnership registered in England and Wales. Registered number: OC308349. Registered office: One Forbury Square, The Forbury, Reading RG1 3EB. Solicitors regulated by the Solicitors Regulation Authority.
References to Partners are to members of Clarkslegal LLP.
Clarkslegal LLP is a member of the TAGLaw worldwide network of law firms.
