What do growing companies need from a non-executive director?

A non-executive director (NED) is a member of a company’s board that can provide independent oversight and contribute to the strategic direction of the business. For growing companies, NEDs can provide valuable expertise, diverse perspectives and impartiality, to help strengthen your board’s effectiveness.

Our Value Creation team have introduced BGF portfolio companies to a huge number of experienced non-executive directors, via our Talent Network — the UK and Ireland’s largest group of business leaders dedicated to entrepreneurial growth. Find out more about the role of non-execs, and how they can benefit small and mid-sized businesses below.

The role of a non-executive director

Typically a part-time role, NEDs won’t participate in the day-to-day management of a company, but will attend board meetings and may act as a liaison between the business and key stakeholders.

The role of the non-executive director is multi-faceted, but key responsibilities include:

• Helping to uphold high standards of corporate governance
• Appointing, removing and evaluating the performance of executive team members
• Ensuring robust financial controls, compliance and risk management systems are in place
• Offering strategic guidance to senior management teams
• Engaging stakeholders, including shareholders, employees, and the wider community

The benefits of having a non-executive director

Appointing a non-executive director to your company’s board can offer significant advantages, such as:

Diverse expertise

Typically drawing on years of commercial experience from different businesses or industries, NEDs can contribute valuable insights to the boardroom. Whether you need help with succession planning or developing an ESG strategy, NEDs can support businesses throughout their growth journeys, offering strategic guidance along the way.

Independent perspectives

Unlike executive management teams, NEDs are able to provide unbiased viewpoints, unclouded by internal dynamics or conflicts of interest. This objectivity allows NEDs to critically assess business strategies and decision making, and can help businesses identify potential risks and opportunities that may otherwise be overlooked.

Access to networks

Often bringing with them extensive industry connections, NEDs can open doors to potential customers, partners, investors and advisors. This can be especially useful to startups and scaleups where founders may not have established networks of their own yet, and can help secure both business development and funding opportunities.

Enhanced accountability

Non-executive directors will oversee executive performance, setting management objectives, feeding into remuneration decisions, and holding other members of the board to account. In doing so, they can improve performance outcomes and make sure that the board’s acting in the best interest of shareholders and employees. As part of the NED role, they’ll also ensure adherence to corporate governance standards and regulatory requirements, to help manage potential business risks.

What makes a good non-executive director?

For SMEs like those in our portfolio, appointing the right non-executive director can be central to achieving their long-term growth objectives. Our team will carry out extensive due diligence, matchmaking businesses with the right non-execs for their boards. What a company needs exactly from their board of directors will vary (depending on sector, stage, growth strategy, and so on) but there are certain things we always look for in a potential NED:

1. Been there, done it

It sounds obvious, but a founder or chief executive needs a trusted non-exec who’s been in their shoes — someone who’s felt the same responsibility of having the success of a business on their shoulders. It can be a very lonely job otherwise.

Having someone to support you who’s previously scaled a business, built a high-performing team around them, and made crucial, timely decisions is indispensable. But also someone who’s made mistakes and learnt from them — the things that didn’t go so well are just as important as the things that did. We look for experienced non-executives who have seen the good and the bad. This gives them the best chances of making a positive and valuable contribution to a company’s board.

2. Pace and dynamism

There are certain personal qualities we like to see in a non-executive director. We back ambitious businesses and management teams, and the non-execs on their boards need to match that pace and enthusiasm. While structures and processes that encourage sustainable growth are key to scaling-up, you also need to be opportunistic and entrepreneurial, and be able to demonstrate fast, effective decision making.

3. Emotional intelligence

The NED role is as much about holistic support and mentoring as it is about strategy and go-to-market propositions. It’s a support role for an entrepreneur that’s scaling a business — perhaps for the first time — while developing their leadership skills. Having strong emotional intelligence, low ego, and the ability to develop a close, trusting relationship with management teams (and their investors) is vital. The best non-executives are motivated by the success of the team and the value being created in the business.

4. Exit experience

We look for non-executive directors with experience in investor-backed businesses and shaping a company for an exit. Exit planning is a long-term responsibility, with continued considerations around what will transfer to value (plus how to maximise that value) and what won’t. NEDs will keep an eye on potential exit routes, whether it’s a trade sale, IPO or some other kind of buyout. And where possible, we’re keen for non-executives to invest alongside us and be aligned with all shareholders.

Many of the non-execs in our network have been through this process multiple times. They can use their experiences to guide senior management, evaluate potential exit options, and support founders in what’s often a time of complex emotions.

5. Complementary fit

While it’s true every business is unique, many of the challenges that face a scaling business are universal. Specialist sector knowledge is not a prerequisite. The executive team almost certainly have specialist knowledge already. More important to us is to be able to introduce a complementary skillset to the company’s board, which aids diverse thinking, and brings together a wider variety of experiences, skillsets and perspectives.

6. Relevant strategic expertise

A deep understanding of the company’s business model and growth plans is essential, of course, for any NED to be effective. For instance, if a business is targeting international expansion, appointing a non-executive director with a track record of global growth would be very valuable. Whereas, if a company is pursuing a buy-and-build growth strategy, a non-exec with merger and acquisition (M&A) expertise would be a better fit. We spend time getting to know management teams, assessing their strengths, as well as where they need support, to help guide the selection process.

Our Value Creation team works with portfolio businesses throughout the lifecycle of our investments, providing a sounding board for ideas or more in-depth scaleup support. If you think you could use some extra capital or a helping hand in scaling your business, introduce yourself today. And if you’re a non-executive director looking to join our Talent Network, you can get in touch here.

Parts of this article appeared in ‘What to look for in a non-executive director’, published by Management Today (October 2022).