In today’s fast-paced business world, boards face the challenge of keeping up with technological changes and market disruptions. It can be difficult for them to stay relevant and make meaningful contributions to their company’s strategy without continually refreshing their knowledge and experience. This is why boards need to seek out directors who can bring cutting-edge expertise to the boardroom and adapt to the role of a non-executive director.
Identifying potential new directors and assessing their suitability for the role is crucial for boards. However, an increasing number of high-quality candidates lack boardroom experience, making the task more difficult. Nominating committees are cautious about appointing executives who have never served on a main board before, as board appointments are long-term commitments and mistakes can be costly.
Identifying and Assessing Potential New Directors
Identifying potential new directors and assessing their suitability for the role is crucial for boards. However, an increasing number of high-quality candidates lack boardroom experience, making the task more difficult. Nominating committees are cautious about appointing executives who have never served on a main board before, as board appointments are long-term commitments and mistakes can be costly.
The Rise of First-Time Directors
Despite these challenges, more first-time directors are being appointed to boards. In a recent report, 33 percent of S&P 500 appointments and 32 percent of FTSE 150 appointments were new directors serving on their first corporate boards. These directors typically brought knowledge in fields such as cybersecurity, AI, machine learning, and industry 4.0 technologies, among others.
But let’s face it, unlike FTSE or global Listed businesses, SMEs rarely have such defined departments and certainly, most will not have a nominating committee. So let’s consider the SME and the things they should look for, in plain English.
Assessing Candidates for the Role of Non-Executive Director
- Clearly define the role of the non-executive director and identify the specific knowledge, experience, and skill set that the candidate should bring to the table.
- Conduct a thorough search for potential candidates, considering those who have not previously served as non-executive directors but have relevant experience and expertise.
- Take a holistic approach to assessing candidates, evaluating their character, temperament, and ability to work collaboratively with others on the board.
- Consider the candidate’s financial literacy, as board members must make important financial decisions and approve financial statements.
- Ensure that the candidate is willing to adapt to the governance role and understands the difference between it and a management role.
- Provide a robust onboarding process for the new non-executive director, including training and mentorship to help them understand their role and the organization’s unique challenges.
- Establish clear performance expectations and regularly evaluate the non-executive director’s contributions to ensure they are meeting the needs of the organization.
SME business owners face unique challenges when hiring a new non-executive director (NED). While experience and expertise are important, SMEs must also consider a candidate’s character, temperament, financial literacy, and ability to work collaboratively on the board.
Providing a robust onboarding process and regularly evaluating performance can help ensure the NED is meeting the organization’s needs. By approaching NED hiring strategically and systematically, SMEs can find the right candidate to help guide their business to success and it doesn’t need to be tied to previous, formal NED experience.