Boardrooms don’t have the best reputation. Images of besuited golfing buddies bringing down the hammer abound. But if you’re considering taking on a non-executive director (NED), repaint that picture.
“At the very early stage of a company, a board member at their best is largely a mentor,” says Doug Richard, founder of School for Startups. The former Dragon should know, having helped cloud accounting firm Brightpearl shoot from seedling to fast-growth business in the last five years. Indeed, a good NED will work with, not against, you – helping your business reach sunnier climes than you could access on your own.
Many start-ups make the mistake of thinking they’re not ready for an NED, but on the contrary, it’s at the early stages that they can make the largest contribution. However, it’s worth turning the spotlight on yourself first and identifying where your weaknesses are. Lesley Stephenson, publisher of The Financial Times’ Non-Executive Directors’ Club, says, “If you’re wanting to expand into China, that’s a good time to bring in an NED who has experience in China. It’s very much horses for courses.”
A typical rate for an NED is between £500 and £1,000 a day, for around two days a month. However, Chris Spencer-Phillips, MD of NED headhunter First Flight, believes NEDs should invest in the businesses they join, to align their interests with those of the shareholders – “not being paid until certain milestones are achieved.” Shares or options are also commonly offered in lieu of payment. However, if you’re expecting additional help, for example with a merger or acquiring finance, it is important to set this out in your letter of appointment. That way, both their time and your financial commitment are agreed in advance.
Now you know you want one, where do you find non-execs for hire? The FT’s NED Club offers free advertising to firms, however most entrepreneurs use their own networks to find the right candidate. Having an acquaintance in common is a great way to check out a potential NED’s credibility, so tell people you’re looking. However, as ever, take recommendations with a pinch of salt. “The only way you ever know if you work well with someone, is to work with them. Invest a bit of time to see how well it works,” says Richard.
If you’d prefer a little more reassurance, last year the FT launched a rigorous six-month accreditation scheme for NEDs, and has 170 students so far. The curriculum includes dealing with conflict, although course director and serial NED Murray Steele says, “You don’t get many conflicts in small companies. It’s more like, ‘I know someone who can help’.”
If, for any reason, the union doesn’t work out, you’ll have to fulfil your contractual obligations, but NEDs have no legal rights to claim unfair dismissal. By contrast, they are as liable as the executive directors if anything goes wrong – so it’s in their interest to do their best by you.
Spoonfed Media co-founder Alexander Will and NED Eric Lawson-Smith
Alexander Will: “When Henry Erskine Crum and I started Spoonfed, we believed strongly that, as young entrepreneurs, we needed to surround ourselves with a team of experienced advisers. We brought Eric on board after we raised our first significant round of angel investment (£400,000) in 2008 (one year into the business).
As a start-up, I think it’s tough to use an agency for such a role. We met Eric because Henry met one of his colleagues, who mentioned Eric’s experience within the digital space. We discussed appropriate remuneration for such a role in relation to the time commitments, looked at industry benchmarks and came up with an NED equity package.
Eric fundamentally understands the space and has so much experience that it was clear we were going to have a positive working relationship. Since Eric joined we’ve raised a further £1.5m, secured an EFG loan from Natwest and launched event-marketing platform Evently, which has a team of 25. All this has been achieved during a rough economic climate. Having someone like Eric on board has helped us navigate those challenges.”
Eric Lawson-Smith: “In the early days, I tried to give as much time as possible between board meetings, to help Alex and Henry formulate their objectives and think about financing in an integrated way.
We have a great, open and frank dialogue. Some months back I was pushing hard to go faster into self-serve. This was a case of my having a view beyond my remit – quite rightfully overturned. They have grown swiftly and easily into leadership roles and my contribution now focuses primarily on board discussions.”
Getting it right
Alexander Will shares his tips for recruiting a non-executive director – and ensuring they’re the right one:
1. Always be on the look-out. You never know when you might meet your next NED.
2. Take the time to get to know each other. See it as a two-way hiring process.
3. Be very clear what you are looking for from them: both in terms of time-commitment and the role itself.
4. Make sure you can have tough conversations with each other. Ultimately, that’s what they’re there for.