Once an almost honorific title, today’s Non-Executive Directors are a vital element of the Board machine, bringing diversity of thought, unique skill-sets, and decreasing the risks of a Board falling prey to ‘groupthink’ and sleepwalking its way into trouble. It is no surprise that the proportion of Non-Executives to Executives on plc Boards has risen from 51% in the mid-90s to 74% today. While this trend has been underway for 25 years, it seems the current situation will only increase the demand for skilled Non-Executives with pragmatic and relevant experience.
Throughout the pandemic, our network of Non-Executives has been telling us that their Boards have been making many additional demands on their time, including additional (up to weekly) Board meetings. This is particularly evident where there are professional investors involved, and some of the larger PE firms are holding fortnightly meetings with all their portfolio businesses to share news and intelligence on Covid-related business matters. Others report playing an increasingly hands-on role, mentoring the Executive Leadership Team, and working much more closely with the CEO/CFO to shape rapidly changing strategies. Times of extreme change and upheaval often highlight the cracks in any leadership structure. Instances of Non-Executive Chairs stepping in to take the reins from failing CEOs on an interim basis before reassuming their Non-Executive role evidence this. Once, it would have been unthinkable for a Non-Executive to take such a hands-on approach.
Norman Broadbent’s long-established Board practice has been in the thick of this Non-Executive transformation. We have seen the role evolve from something akin to that of an advisor, to one of strategic importance, bringing critical knowledge and experience vital to an organisation’s growth and strategic direction. Over the last five years, we have seen a significant shift in what organisations need from their Non-Execs. Where there was once a need for sector experience, the emphasis is now on specific skills and experiences such as M&A, HR, Marketing, Transformation, Digital, or Cyber. This emphasis, particularly on the emerging skill sets of digital and tech, has driven an increase in interest in first-time Non-Execs. With the rapid pace of tech change, many Boards seeking expertise in these areas need to look towards those in Executive roles who have the relevant expertise and experience. In 2019, we successfully concluded a search for an AIM-listed technology firm who wanted to pivot their business model from manufacturing to one based upon a subscription model. They were seeking a Non-Executive with experience in selling Software as a Service (SaaS) – a term that has come to the fore in the growth of cloud computing in the 2010s but was barely heard of outside of niche technology businesses prior to that. The shortlist that was presented was noticeably younger and formed largely of those looking for their first Non-Executive role.
We have also seen an increase in demand for Non-Execs for non-listed businesses. As the role of the Non-Exec grows, and the benefits they offer become more obvious, privately held, PE-backed and family/founder-run businesses have sought the benefits of Non-Executives to bring in additional expertise and experience. These organisations also benefit from the greater diversity of thought and new/different perspectives that Non-Executives bring. For founder-run/family businesses with established characters at the head of the table, it is vital to ensure cultural fit is properly considered, not just the relevant skills and sector experience. The flip side is that some Non-Executives from less traditional backgrounds (PE, Family Businesses, etc.) have developed portfolio careers as they bring a fresh outlook to other Boards, both listed and private.
As a result of these trends, the face of Boards is changing. The average age for a first time Non-Executive on the FTSE AIM market in 2019 – 2020 was 55. This can be contrasted with the overall trend that the average age of Non-Execs is rising as people retire later and continue their portfolio careers into their 70s and even 80s. The demand for specialist skill sets has also supported the move to push for greater gender diversity on Boards. Female appointments are more likely to be first-time Non-Execs and at a younger age than their male counterparts, although there is greater diversity of age amongst male Non-Execs, ranging from their 40s to their 80s. This may be a result of the fact that many women on Boards have been relatively recent appointments vs their male counterparts.
However, there is still more to do, particularly in the AIM space, where a third of Boards remain all male. Many Boards have also been accused of a ‘one and done’ approach to diversity, viewing it as a tick box exercise which is completed as soon as a female Board member has been appointed. There is also much more to do re ethnic diversity, with 95% of Directors in the FTSE AIM and Small Cap markets identifying as white, and only 20% of Boards including BAME directors. There is a risk that poorly performed searches will screen out BAME candidates early on, in the arena of ‘cultural fit’ which should be guarded against.
Finally, let us go back to today’s most pressing issue – the pandemic. Leadership has never been more important. The role of the Board in setting and measuring the delivery of strategic objectives; the importance of the CEO in driving the business forward, continually communicating and motivating people and demonstrably practicing good governance; and the importance the CFO plays in ensuring any business maximises resource productivity, and remains financially viable and business compliant. The pandemic has meant difficult and tough decisions have had to be made. This in turn has heralded the need for greater pragmatic experience coupled with the ability and diversity to welcome and encourage new opportunities. The need for such skilled Non-Execs – working together with their Executives – has never been greater.
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With over forty years of experience placing professionals on Boards, and as sole partner of the UN Women in the UK, Norman Broadbent’s Board Practice has been an ongoing supporter of diversity on Boards for many years. Our flexible approach and commercial structure offer clients the ability to create a bespoke solution which suits their needs without any dilution of quality. In addition, our expertise and experience help Boards identify and fulfil their business-critical requirements. If you would like to find out more about us, or perhaps to discuss a people or organisation challenge in confidence, please do not hesitate to contact <u>Angela Hickmore</u>, Group Managing Director or <u>Andrew Smith</u>, Group Client Partner.