By Daniel Hunter
Small and mid-cap companies recognise non-executive directors (NEDs) independence and value but have set out clear instructions as to how they can do more. The latest quarterly QCA/BDO Small & Mid-Cap Sentiment Index reveals that companies are specifically calling for more long-term planning and vision from NEDs.
In the latest report, which garners opinion from across the small and mid-cap quoted sector, companies praised the independence and cost effectiveness of NEDs. The majority (83%) believe them to be sufficiently independent, knowledgeable about the business (90%) and with an average salary of £31,185 per annum (£250 per hour), 71% think they provide good value for money, and over half of advisors (54%) share that view.
Companies and advisors are in agreement that NEDs add value through their strategic and governance roles: principally by utilising their broader business experience, providing checks and balances and thereby improving corporate governance.
“NEDs are one of the most valuable resources for a quoted company and the dated stereotype of the NED as a walking contact book has given way and evolved into a far more strategic role," Scott Knight, Partner, BDO LLP, commented.
"Our research shows, and our clients tell us, that NEDs are often making a significant contribution through independent and broad business experience, providing constructive checks and balances on Executives, and subsequently improving corporate governance.”
Tim Ward, Chief Executive of the Quoted Companies Alliance, said: “Small and mid-cap quoted companies are all about a growth agenda. To deliver that growth, they are telling us that they need non-executive directors with a breadth and diversity of experience and a strong corporate governance grounding.”
The report also outlines where small and mid-caps believe NEDs can add even more value. More than a third (37%) of companies and 59% of advisors want more long-term vision and planning from their NEDs. This was the most commonly held recommendation among advisors. The most frequent recommendation from companies meanwhile was for their NEDs to provide more valuable contacts with other organisations (45%). In addition 31% of companies want more investor contacts from their NEDs.
Scott Knight, Partner, BDO LLP, added: “While the majority of companies are more than satisfied with their non-execs, there is no single universal model for a successful NED. As our research shows, companies want the long-term benefits of improved planning and vision combined with independent thinking. Companies and advisors must set out an evolved job spec for NEDs to ensure they can act as visionaries that support longer-term growth planning, while maintaining their valuable networking skills.”
Tim Ward, Chief Executive of the Quoted Companies Alliance, said: “Companies and their advisors agree that a long-term view is a key requirement from a non-executive director. To put that in context, more companies fail coming out of recession than going into it, so we see a clear need for an NED-led strategy to manage the risks from a post-recession economy.”
While companies and their advisors broadly agree as to the necessity of long-term planning, the report reveals divergent attitudes in connection with NED performance. Just 9% of advisors believe that NEDs are very knowledgeable about their company and its business operations.
This contrasts with 40% of companies, who see NEDs as very knowledgeable about their company. In addition, over half of companies (58%) do not think that their NEDs should spend more time working for their companies than they currently do, but 80% of advisors believe NEDs should be doing more for their companies.
Scott Knight, Partner, BDO LLP commented: “I was surprised that 90% of companies feel their NEDs are knowledgeable about the business, there are some great NEDs who invest a huge amount of time but still a minority who continue to have a much lighter touch. Our research helps to dispel the myth that Management can keep NEDs at an arm’s length.”
Tim Ward, QCA, commented: “The onus is on companies to get the most out of their non-executive directors and to bring their advisors on that journey with them, being proactive in demonstrating how they best add value. Current economic conditions make this need even more acute - growth planning is crucial as companies free themselves of the recession.”
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