The Value Of A Strong Board of Independent Directors

Non-Executive Directors are typically associated with multinationals and public companies, where their role involves strategic advice, acting as a monitor and check system for the executive management team, whilst ensuring good corporate governance standards are maintained. SMEs often gloss over and ignore the potential benefits of having a non-executive director or directors, assuming that they are only relevant to and useful for much larger companies.

The right non-exec appointee can offer many benefits to an ambitious and rapidly growing SME, providing a founder and their executive management team with genuinely fresh thinking, commercial introductions, enhanced credibility and a confidential sounding board – this last point is particularly valuable in the SME market, where a founder often has had to take the toughest decisions with nobody to turn to for unbiased advice other than their family and friends. I know from personal experience that founding a business and growing it is a lonely affair, and there is truly nowhere to hide when making important strategic decisions. Having someone else inside your business as a trusted adviser who can bring their experience and insights to the table for your benefit can help an SME steer itself in the right direction and scale up more rapidly.

When pursing an M&A exit / sale or when raising investment capital be it via an equity raise from a venture capital fund or through other sources of finance, an experienced and properly connected non-exec can provide greatly enhanced credibility to the business when speaking to potential M&A partners or venture capital investors. They can achieve this by demonstrating by their very presence that the management team has additional hands on the deck to coach and nurture them and support their decision making by challenging them in a constructive way and sense checking key strategic moves. This enhances the credibility of the business plan and growth strategy presented in a transaction to a potential buyer or investor, and provides an immediate additional layer of due diligence credibility, improving the chances of a successful transaction closing (at the right valuation and on the right terms for the founders / owners of the company).

The best non-execs for an SME are those that can constructively challenge and probe the plans and strategies of a business owner, whilst following up with commercial introductions that add value to the business. There is nothing wrong with disagreements, in the final analysis the ultimate decision making power rests with the founders and the management team – the right appointee as a non-exec will be able to test them and pro-actively challenge and steer the company in the right direction by giving the best possible advice, drawing on their experience, whilst deploying their contacts to help the company grow even faster and get to the right customers and partners more efficiently.

It is critical to work with a non-exec who has solid general knowledge of all aspects of businesses, not purely a financial expert or a regulatory expert or someone whose expertise is 100% tied to the specific business for which they are hired as a non-exec. It is very likely that the person or persons with the strongest specific technical knowledge relating to the business and its operations are those who are running it as the executive management on a day to day basis – it follows therefore that the most attractive non-exec candidate ideally should have the experience and the appetite to help shape the company’s marketing strategy, staffing/HR strategy and regulatory framework. This last item is particularly relevant in sectors such as fin-tech, where growth plans may involve multiple layers of complex regulation as the company scales up and grows internationally into new jurisdictions.

Sourcing a candidate through your personal network with the buy-in and input of your management team and staff is the quickest and most immediate way to find candidates as they are likely to be people that you have an existing comfort level with and who are already well known to the business and its staff members, so there is a strong chance of a good fit. Specialist head-hunters will also be helpful if you wish to broaden the net even wider and identify a candidate with a very specific set of skills, experience and contacts in their database, potentially in tandem with the first approach. Professional bodies, trade associations, chambers of commerce, industry bodies and networking organisations can also play a valuable role in finding the right candidate.

The best results and the closest fit with your needs will be achieved if the right effort is taken at the beginning to not only find the right candidate(s), but to properly induct them and properly bed them into the role at the start so that they truly know the business inside and out, and are given a proper chance to contribute and gel properly with the company’s team, its customers and key counter parties such as legal advisers, bankers and consultants.

Cultural fit is very important, as are regular reviews to ensure that there is a genuine two-way flow of information and advice. A good non-exec in an SME will keep themselves properly informed (with the full assistance of and support from the management team) on a very regular basis about the company’s affairs, not just a couple of times a year at a handful of board meetings. They need to have a regular and timely flow of the right information to function effectively, providing advice to the management team based on the big picture.

Having regular access to the right facts and figures and being truly inside the sanctum, not outside it, will make all the difference and ensure that the non-exec can truly add value to the SME and prove their worth many times over.