What red flags should non-executive directors always be alert to?
NED’s be alert
Non-executive directors are in demand more than they ever have been before. This could in part be down to the UK Corporate Governance code, which applies to premium listed organisations, stating that half a Board should be made up of non-executive directors. Or that the major failings that have dominated the media in recent years including safeguarding, whistleblowing and lack of Board transparency have raised serious concerns. Whatever the cause, the result is a positive step in the right direction – independent oversight and constructive challenge.
But with the increasing pressure and spotlight on non-executive directors, what do they actually need to watch out for? What should cause them concern in an increasingly complex operating environment? We outline below some typical poor Board practices that should get non-executive directors using their right to challenge and being a critical friend.
1 A dominant CEO that is difficult to work with and will not listen to advice.
2 Agendas and minutes are poor.
3 Board meetings are badly controlled, and too often few Non-Execs Directors actually say anything.
4 The CEO and the Chair are the same person.
5 Non-executive directors have been in post for a long time, do not understand the business enough to challenge, are not diverse or just tick boxes.
6 Non-executive directors don’t have a full understanding of the organisation and are unable to benchmark against other similar organisations.
7 There is a lack of diversity of thought on the Board. While physical diversity may exist, does non-physical diversity exist?
8 The impact of the Board is not measured or understood.
9 Audit committees don’t challenge management or support external/internal auditors or other regulators.
10 Reporting is unclear and unrealistic.
#sme #IoD #GMChamber #FSB #Founders #Directors
Marc Mazzucco – Partner RSM 8th October 2019