Are non-executive directors worth your time and money?
Running a business can be tough at the best of times. So many unplanned challenges and obstacles facing you every day. It’s hardly surprising that even the most confident of entrepreneurs question their abilities.
If you’re an owner, CEO or MD wanting to take your business to the next level, you’re probably going to need some outside help. It’s important to be humble enough to recognise you don’t know everything and curious enough to listen and change. But where should that external advice come from? Traditionally in the UK, companies hire non-executive directors.
If they’re PLCs they have to do this. It’s a legal requirement to have non-execs on your board to represent the shareholders for fiducial/compliance purposes. But if you’re a small, privately held business you have more options. My suggestion is you use that freedom to assess what you really need instead of blindly following the herd.
So why are non-executive directors less effective for growing businesses? What are the other options?
Deciding you need advice
I find my SME clients often start companies with no particular purpose apart from earning money and working for themselves. Down the line, they find they’re running a lifestyle business that’s completely reliant on them as the founder.
So, they can’t sell it. It has no value. The business begins and ends with them. Whilst they may not have set up their business to fund their retirement, there may come a point where they want to take money out and are quite happy for it to pass on to their employees or family.
This may be your current situation. Or you may have built a business with a view to scaling and then selling it. Now, you’re realising that the speed it needs to grow and the challenges this poses means you need some outside help.
The disadvantages of non-exec directors
When I left Peer 1 and before I became a coach, I took on some non-executive directorships. These companies were looking for help in the areas of scaling up, building stronger cultures and shifting from one-off to recurring revenue – my sweet spots. Some of them eventually transitioned to become my first coaching clients. And I can tell you, there is a massive difference between the results gained from bringing in non-executive directors versus that of a coach.
To start with, the meeting rhythm was all wrong. When companies engage non-execs, they tend to suggest they come to board meetings maybe a day or half-day every month. Big mistake! These meetings are just so dull. All too often, there’s no structure and no plan. Presentations are given of varying quality, often focused on the execution of short term issues. I might have some positive or negative things to say. Maybe I’d tell them about times I’d seen something done better or make observations on their metrics. But it was all ad hoc with no real structure for improvement. So frustrating!
If you’ve found entrepreneurial leaders with strategic skills, don’t subject them to this stultifying board meeting framework. They’re likely to be highly creative, visionary people who are often dyslexic or ADHD. Many of them couldn’t do execution if their lives depended on it. You’ll bore them sh*tless! Take them off-site instead for a session where they can get you to think bigger.
Then make sure your leadership team are A-Players and put together a framework to deliver on your new strategy. There are plenty of fantastic books out there to help you, The 3HAG Way, ScalingUp, Traction, Great Game of Business to name but a few.
Don’t fall into the trap of hiring semi-retired business people at the end of their corporate career. They’ll have no process with SME applicability and they won’t help you get to where you want to go. And remember, it’s a complete faff hiring non-exec directors. You’ll have to register them with Companies House and cover them with your insurance.
The advantages of an advisory board
So, what should you do as an alternative? My advice is to set up an advisory board.
Let’s say you need help with channel marketing or knowledge of a new foreign market. Maybe you need help hiring A-Players. Decide the terms and remuneration on offer and network until you find people with the right knowledge, connections and perfect black book.
Remember, they don’t need the regulation of governing responsibility – I think it’s better to keep stewardship and governorship as separate things. And no one needs to take out any insurance. Meetings can be quarterly or six-monthly – not too onerous but enough to help you steer the right course and plan three years ahead instead of one. Have the meetings off-site and take along strategic members of your leadership team. One thing’s for sure – an advisory board is invaluable if you’re trying something new.
And if you need to fix execution? Hire someone who’s an operator who can come in and drive this separately.
Consider hiring a coach
You may think non-executive directors are relatively cheap but if you really want to speed up and scale quickly, you need a coach.
The monthly cadence of a board meeting is, generally speaking, a review of the previous month’s execution. But when I think of the clients that I’ve transitioned from non-exec directorship to coach, we’ve really picked up the pace. And I’ve had way more impact on both their strategy and their execution. I help them decide the right strategy and, once we’re working on the right stuff, give them a framework for execution so they can move faster.
Some business coaches go in to see clients every week. What are they doing exactly? Teaching you to tie your shoelaces? This level of concentration on the everyday workings of your business should be totally unnecessary. If you need this, it’s telling you that your leadership team are crap and you need to make some hard decisions to get the right people on board. Quarterly meetings work well. Just enough to keep everything on course and running smoothly.
But a warning. The world is full of thousands of business coaches who couldn’t string a strategic sentence together. You need to find the right partner. Look for high achievers – people who have been there and come out on top. They need to walk the walk as well as talk the talk. Can they help you 10x your vision? Can they articulate how you double your business in three years? What do they cost? It shouldn’t be more than 10% of your upside on profit.
Finding the right advisers
Be really specific about what you’re trying to do and spend time identifying the right help. Remember you can never execute yourself out of a bad strategy. First and foremost, you need advisers who are strategic experts. Maybe they’ve got a track record of transformation and a strong strategic bias.
I can’t emphasise this enough. There’s no point getting more efficient but doing the wrong things. Often I find this is down to a lack of clarity over fundamentals, chiefly Core Customer. So many small businesses have too much breadth – they do 10 things averagely well. But they’re not going to be best in the world at any of them.
Hiring a non-exec director who doesn’t come with a bag of tools or a process to follow will not solve that problem. They may help you polish one of the door mirrors on your used car but it’s still a jalopy.
The exception is around Mergers & Acquisitions and private equity. I’ve seen many PE-backed businesses hire non-executive chairs with a deliberate plan to raise money or help drive M&A. All well and good, but it’s still not actually making your business run better. That’s executing a strategy around M&A because you’ve decided organic growth is too slow or too difficult. Many of these PE firms have fantastic operating partners who are really in-house business coaches.
- NAVIGATING AND COMMUNICATING CHANGE
- BUILDING COMPANY CULTURE
- CHOOSING THE RIGHT OPPORTUNITIES
- ORGANISING YOUR A-TEAM
So, are non-executive directors for SME firms worth the money? Not in my opinion. If you’re a small business, steer away from them. Instead, think about appointing an advisory board or a business coach. Remember, if someone doesn’t bring you a process, then their ability to help you move quickly is really limited.
Written by business growth coach Dominic Monkhouse. Find out more about him here.