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The business literature is unanimous

Benefits of NED’s in the SME Sector Presented by Leslie Spiers MA MBA DMS CertEd Boardroom Dynamics Ltd. The business literature is unanimous. Board is no longer a cosy affair Proactive and transparent Growth in status of NED = more scrutiny Diverse opinions improve the board decisions

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The business literature is unanimous

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  1. Benefits ofNED’s in the SME SectorPresented byLeslie Spiers MA MBA DMS CertEdBoardroom Dynamics Ltd Boardroom Dynamics 023 8074 4450

  2. The business literature is unanimous • Board is no longer a cosy affair • Proactive and transparent • Growth in status of NED = more scrutiny • Diverse opinions improve the board decisions • Effective boards = Mix of Exec and NED Boardroom Dynamics 023 8074 4450

  3. Appointing NED’s • Historically poor - Smoke filled rooms • Fewer than 4% have formal interview • Fewer than1/3 Chairs help NED induction • Diversity vs. group think vs.quotas Boardroom Dynamics 023 8074 4450

  4. Directors’ legal requirements Now codified in Companies Act 2006 Act within your powers Promote the success of the company for members Exercise independent judgment Exercise reasonable care, skill and diligence A general duty to avoid conflict of interest Duty not to accept benefits from 3rd parties Duty to declare an interest in proposed transactions Boardroom Dynamics 023 8074 4450

  5. Responsibilities of theBoard Accountability To the company To Owners To regulators and legislators To Stakeholders Ensuring Directorial Audit Policy Formulation Stating Purpose Creating Vision and Values Developing corporate climate Monitoring the external environment EXTERNAL The Board Governance Review Cycle Strategy Review Cycle Strategic Thinking Market Positioning Setting corporate direction Reviewing resources Setting implementation processes Supervising Management Performance Management Budgetary Control Review of key business results Organisational capability INTERNAL SHORT TERM LONG TERM Operations Review Cycle Boardroom Dynamics 023 8074 4450

  6. Board composition & organisation • "A Board may be composed of brilliant • individuals and yet be ineffective. • It can only fulfill its true potential as a Board if it is properly selected, organised and led." • Good practice for directors – Standards for the Board Boardroom Dynamics 023 8074 4450

  7. Directors…… • Establish clarity of mission, vision and valuesto lead the broad direction of the company • Decide upon the strategies and structureto ensure the company's survival & prosperity • Delegate to management and involve staffto effect implementation of strategy, policies & plans • Exercise responsibility to shareholders and other interested partiesto promote & meet their legitimate interests Boardroom Dynamics 023 8074 4450

  8. The Role of the NED • “To help build a successful company” • Higgs suggests 4 components • Strategy • Performance • Risk • People • The role is to balance monitoring with strategic aspects Boardroom Dynamics 023 8074 4450

  9. NED Engagement in Strategy SWOT PEST LIED Porter Boston Box Ansoff Matrix Strategic Alternatives Strategic Choice Strategy Implementation Optimal Point to Engage NED in Board Strategy Where most CEOs Engage their NEDs in Strategy Boardroom Dynamics 023 8074 4450

  10. Boardroom Dynamics 023 8074 4450

  11. Keep a close eye on risk! Boardroom Dynamics 023 8074 4450

  12. People and performance What was the most significant decision this board made in the past year? If you could change one thing about this board, what would you change – and why? What do you see as the board’s most important priorities over the next 6, 12, 18 months? What are the major risks facing this company? How would you describe the working relationship between the board and the CEO? • Confidential, structured interviews typically conducted by a third party but sometimes conducted by the Chairman, the Chair of the Nominating/Governance Committee or the corporate secretary; this methodology is used by 43% of UK boards Boardroom Dynamics 023 8074 4450

  13. What are the benefits of an NED? • Strategic and long term perspective • Financial scrutiny, business compliance and governance • Monitors executive decisions • Independent mentor and sounding board • Constructive challenger, reflector and pain in the bum • Performance monitoring and driving ethical matters • Dealing with risk and managing change • Director evaluation and remuneration • Source of appeal (and reason), fire fighter • Over reliance on one person • Restrains power mad entrepreneurs/motivates lazy devils Boardroom Dynamics 023 8074 4450

  14. NED Remuneration Fees for <£5m Turnover LQ Median UQ Chairman 6000 18000 35000 NED 10050 15000 29350 Fees for >£5m to <£50m Turnover Chairman 18337 30000 41750 NED 10000 20000 28750 Source: IOD Croner Reward, Director Remuneration, October 2008 Boardroom Dynamics 023 8074 4450

  15. NED Time Input (Days pa) <£5m Turnover Mean Chairman 24 NED 14 >£5m to <£50m Turnover Chairman 44 NED 14 Source: IOD Croner Reward, Director Remuneration, October 2008 Boardroom Dynamics 023 8074 4450

  16. Strategic Direction Contributes creatively and realistically to planning 2 Can balance needs and constraints 2 Has deep knowledge and understanding of strategy 1 Holding to Account Accepts personal accountability for delivering agreed actions 2 Challenges constructively and effectively 3 Contributes to effective governance 1 Influencing & Communication Manages board meetings and board processes well 2 Persuades with well-chosen arguments 3 Uses facts and figures to support argument 3 Uses subtle and informal tactics to persuade 2 Team Working Involves others in decision-making process 2 Respects other team members 1 Understands the Non-Executive Chairman’s role 1 Coaches and mentors other directors 2 Shares expertise and knowledge freely 3 Personal Qualities Assertive without being aggressive 2 Acts confidently and is accessible 2 Willing to accept a challenge 2 Enthusiastic and a champion of the business 2 Emotionally resilient and a stable influence on the board 2 Boardroom Dynamics 023 8074 4450

  17. Characteristics • What is the make up of the NED? • What are implications for • Selection • Induction • Performance Measurement Boardroom Dynamics 023 8074 4450

  18. NED Requirements Skills Experience Characteristics Boardroom Dynamics 023 8074 4450

  19. NED Characteristics Boardroom Dynamics 023 8074 4450

  20. Why Characteristics Matter Characteristics Tasks Job Complexity Simple Difficult Boardroom Dynamics 023 8074 4450

  21. What drives our Behaviour? Easy to acquire Skill Knowledge Social Role Self Image Traits Motives Harder to acquire Boardroom Dynamics 023 8074 4450

  22. So, what is needed? Working the Context Understanding Context Relationships Influencing thecontext Proactive Self Confidence Insightful Integrity Boardroom Dynamics 023 8074 4450

  23. Insightful Integrity • The foundation stone of the NED • Not just about honesty • Alert and engaged • Guarding against complacency • Scan the business and its context • Ask brave and probing questions • Identify and distil important issues • Willing to act in line with insights Boardroom Dynamics 023 8074 4450

  24. What is needed? Working the Context Understanding Context Relationships Influencing thecontext Proactive Self Confidence Insightful Integrity Boardroom Dynamics 023 8074 4450

  25. Proactive Self Confidence • The confidence to challenge the Board/CEO • Facing the issue of being a minority • Comfortable asking the awkward question • Having positive intent • Challenge with support • Knowing when and how to make impact Boardroom Dynamics 023 8074 4450

  26. Proactive Self Confidence • Asking questions and feeling stupid at times • Not just sitting and being dumb • If it does not sound right - open it up • Action without rocking the boat Boardroom Dynamics 023 8074 4450

  27. What is needed? Working the Context Understanding Context Relationships Influencing the context Proactive Self Confidence Insightful Integrity Boardroom Dynamics 023 8074 4450

  28. Working the Context • Ability to understand the context • Knowing the dynamics of the board • Possessing a degree of realism • Sustaining the right relationships • Influencing the context • Ability to make things happen Boardroom Dynamics 023 8074 4450

  29. Need more? Board Development for Non-Executive Directors from Boardroom Dynamics Ltd. Becoming an effective Non-Executive Director: A leadership programme for aspiring and new Non-Executive Directors in the SME sector. Duration, Date and Venue Monday March 22nd 9.3am until 5.00pm Guildsrealm House, Ensign Way, Hamble, SO31 4RF Boardroom Dynamics 023 8074 4450

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