Finding the right Non-Executive Directors (NEDs) is one of the biggest challenges SMEs face according to a recent member survey we conducted. Why? Because NEDs, though typically associated with big blue-chip companies, can play a much more critical role for growth businesses.
On listed company boards, NEDs are more corporate governance guardians or watchdogs, but in smaller businesses they can play a much more dynamic role as growth enablers and promoters.
Partly responding to member feedback, where we can, we help match NEDs with our members. Below, based on their views and the research we have done, we outline the key DNA characteristics to look for in the ideal growth company NED and the business areas where they can make the greatest contribution.
Probably the most important factor is that the potential NED has a track record in founding and building up SMEs. This offers experience in overcoming growth hurdles, ranging from the marketing challenge of getting a newly formed business known in its target markets, persuading the right calibre of employees to join an unknown company and coping without the developed management infrastructure and support functions such as HR and fully-staffed accounts department.
Having ‘been there and done it’ provides a potential NED with exposure to all these often similar growth issues and problems that entrepreneurs face whatever the sector, which running or being the CEO of an already established company does not afford.
Another characteristic to look for is that the NED has complementary experience, preferably in adjacent sectors – this helps SMEs, which often start out focusing on a particular niche, overcome the problems of expanding into new areas.
Having an NED who has a wide range of skills sets, who has shown he can input into everything from accountancy through to marketing, is better than a specialist, as SMEs have to weigh every new hire carefully.
The starting point of where the right NED can make the biggest contribution is probably helping to professionalise the management structure. Many SMEs start out as family businesses and don’t have the right procedures in place. This can be damaging as a business grows so improving these areas can be vital.
Another weakness. of early stage growth businesses in particular, is that they lack a proper finance function. Full time FDs are rare in young businesses, with the founder often overseeing this function.
Yet regular, updated management accounts, accurate forecasts can be critical to ensure costs are controlled and growth is well planned. A NED with a finance background can make a very valuable contribution to improving this area and information flow in the business.
Acting as a sounding board, as the CEO and executive management develop their strategy, is clearly a key role which NEDs on both listed and growth companies can play. However, freed from the mind-set of corporate governance watchdog which often inhibits listed-company NEDs, their growth business counterparts can play a much more positive role.
A NED who has experience of taking his company to overseas markets, can be of immense value in helping to enable a growth business expand to foreign markets. Typically SMEs initially focus on their domestic market so an experienced hand to provide support can considerably ease the process.
Lastly, the right NED can be instrumental in securing the maximum price on exit. Selling their business is often described as one of the most stressful exercises by founders of businesses.
There is the emotional wrench plus they have to run the company at the same time as selling it. An NED who has been through the process and who can be used to make initial contact and negotiation with potential buyers can greatly help secure the best price for a business.
Although finding the right NED is far from easy, if a business can identify the right candidate they can help a growth company transform itself from a merely a success story today to one of the leading businesses of tomorrow.
Shalini Khemka is the co-founder and CEO of E2Exchange.
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