For publicly listed and regulated organisations, the case for appointing Non-Executive Directors (NEDs) to the Board to provide independent oversight and corporate governance is clear. However, many small and medium sized businesses (SMEs) view a Non-Executive Director as an expensive luxury and miss out on some of the huge benefits they can bring.
Depending on the size and growth stage of the business, we’ve identified the seven key benefits of an SME appointing an NED.
1. Acting as Brand Ambassador
An NED with an impressive CV and extensive network of relevant contacts will be able to act as an ambassador for the business within their sector or community. A strong NED will be able to impact positively on the ability of the business to attract clients, staff and investors.
2. Leading Fundraising
A NED who has successfully secured investment for previous businesses will be well networked with investors and be able to advise on the process of fundraising. We have appointed many NEDs with fund raising experience to help steer businesses through the complex process of securing investment for growth.
3. Bridging Skills Gaps
A good NED will act as a trusted advisor to the Board and can often fill gaps in the company’s in-house capabilities. For example, we have appointed NEDs with legal, financial, business development, or marketing expertise to SME’s that do not have the necessary expertise in-house. They have chosen to invest in higher level NED support rather than more junior employees for these skillsets.
4. Long-term Strategic View
The directors or owners of an SME can often be too embroiled in the day-to-day operations, whereas it’s much easier for an NED to take a step back and look at the long-term strategy. Where an SME is embarking on a growth journey, engaging an NED who has the experience of already taking an SME business through an expansion phase could be vital to success. The NED will be able to advise on the potential pitfalls ahead.
5. Objective Oversight
It isn’t always possible for the Board members of an SME to agree on everything. A strong NED can provide objective oversight and function as the casting vote for major decisions when agreement can’t be reached between the directors or shareholders. This can be particularly important when the Board are voting on an emotive issue or where the relationship between the Board members has broken down.
6. Corporate Governance
The Boards of SME’s are normally comprised of the entrepreneur(s) who are passionate about the business. Board meetings can often be informal and this can make it difficult when tough decisions need to be made. Appointing an NED will add professionalism and structure to the corporate governance of the business.
7. Critical Friend & Coach
When selecting an NED for an SME, the right personality and culture fit are essential. A strong NED will constructively challenge decisions being taken by the Board or founder through coaching and advising them.
Summary
Far from being an expensive luxury, a Non-Executive Director can deliver significant value to a small or medium sized organisation. Having appointed NEDs to a variety of SMEs across multiple sectors, we’ve seen first hand the benefits the right NED can bring. This is particularly the case when investment and growth are at the heart of the SME’s long term strategy.
