Ensuring your organisation avoids being the next corporate governance crisis 782x504

Ensuring your organisation avoids being the next corporate governance crisis: Top tips from the NEDs’ side of the table

Reading Time: 3 minutes

Top tips from the NEDs’ side of the table

Eton Bridge Partners hosted a dinner for Chairs and Non-Executive Directors (NEDs) in November 2018 to discuss the role of NEDs in ensuring that they avoided being in the headlines for the wrong reasons. Louise Chaplin, Head of Board Practice at Eton Bridge Partners, summarises the discussion, which was led by Natalie Ceeney CBE.

These are tough times for business. Standing still is not an option but new pressures including regulation, Brexit and tech disruption are stretching the bandwidth of CEOs ever more thinly. It’s easy to see how boards can miss having a critical debate at a key moment, or fail to spot the issue that derails their business.

A series of household names have encountered major reverses of fortune in recent years and many of these organisations employed good, intelligent, diligent NEDs but still ended up in serious trouble.

There are, though, certain steps you can take to lessen the chances of that happening to you and the company in question. Our wide-ranging discussion at the dinner offered several guidelines for NEDs and the boards they sit on:

1. Do your due diligence. Ask around and ask widely. Talk to the auditors, the other NEDs, look at Glassdoor and research the CEO and FD. But do so in the knowledge that it still won’t be enough.

2. When you’re on the Board, engage below the CEO and CFO.
Site visits are vital and getting to know the senior team will put you on the front foot. Good CEOs will welcome this, and it will help you understand the business and culture.

3. Work only for Chairs that you rate.
This is self-explanatory. If that initial respect is not there, it will make the ongoing business relationship extremely challenging.

4. Understand the organisation’s business model thoroughly.
Look as closely as possible at the weaknesses and challenges it faces. Don’t assume that if you can’t understand it, it’s you that’s the problem. It might be the business model that doesn’t make sense.

5. Build relationships with the other NEDs.
Make time to get to know them and it’s easier to work together – and to challenge them. Creating NED-only time around board meetings allows time to look at underlying issues. It also makes it easier to work together should a crisis occur.

6. Read dissenting views.
Subscribe to daily press cuttings and check on Glassdoor as to how staff are feeling. If you have access to these views you can ask better questions and challenge a strategy even when it’s not your sector of expertise.

7. Ask the dumb questions.
This is harder to do around some board tables than others. No one wants to look stupid in front of their peers. But it’s essential.

8. Develop your own red lines and stick to them.
You are defined by what you tolerate. Create your own list of red lines that are non-negotiable. This might be about process (e.g. lateness of board papers) or content (e.g. supplier terms). And be clear and open about these red lines to Board colleagues.

Look at the “how” as well as the “what”. Of course, Boards should focus on strategy and governance, but a lot can go wrong in implementation. This is not to say NEDs should micro-manage, but NEDs can and should ask questions about capability to deliver, risks of delivery and delivery governance.

10. Don’t be hired as the “expert”.
You shouldn’t be marking your own homework. If an organisation expects an NED to provide cover for gaps in the exec, that’s a warning ‘red flag’.

11. Meet the shareholders or owners.
This should be standard but not all boards encourage it. Meeting investors and advisors is a critical part of ensuring NEDs understand what shareholders or owners want of the board.

12. Ensure CEO succession planning is always on the radar.
It’s surprising how many boards are a bit squeamish about focusing on the likelihood that they will fire and hire a CEO. They should do this early, even when the CEO is relatively new and/ or performing well, and ensure that they are always benchmarking and developing internal talent to widen their options.

13. Trust your gut.
We now know from behavioural research that there is real science behind this. When you have a niggling feeling that tells you to walk away from a NED appointment offer, or to say ‘this decision worries me’, you are probably right.

14. Never waste a good crisis.
This can be a time to reflect on what went wrong, look deeper into issues and strengthen relationships and approaches.

15. Don’t be afraid to resign.
Walking away can be the right option in certain circumstances. (However, it should be noted that not everybody at the dinner subscribed to this!)