Opinion

SMEs need to invest more time and effort to get the best directors

6 min read

09 March 2015

Those running small and medium sized enterprises have so much to do on a day to day basis that every often the hiring fellow directors, useful though it would be, is far down on the agenda.

Research also suggests that many SMEs are failing to recruit enough women. According to findings by Approved Index, a business-to-business services marketplace, among the Fast Track 100 (an index of the most entrepreneurial companies) it discovered that women accounted for just 8.4 per cent of directorships – compared to 22.8 per cent for and FTSE 100 companies and 15.6 per cent for FTSE 250.

This particular problem is not simply an equality and box ticking issue. Successful though they might now be, these companies might be storing up problems in the longer term as they grow. Research from KPMG shows that companies with boards of directors that are diverse often do better in terms of long-term growth and profitability than those with very homogeneous boards because they take a wider, more holistic approach to business issues and are more likely to reflect a greater number of their customers in terms of the make up of their staff.

Another recent report, this time by Credit Suisse, suggested that investors see better returns if they invest in businesses with a mix of male and female board members rather than just men.

A survey published in 2013 showed that SMEs who had hired a finance director (FD) were much more likely to be offered finance by bankers or investors – because financiers believe that companies with an FD consistently outperform those without.

Trevor Overall, joint managing director at My Business FD, a specialist financial advisory firm which commissioned the research said: “Our survey revealed not only that financiers stress the importance of hiring an FD, but also such a hire is the key to breaking the stalemate between SMEs and the investors and unlocking access to growth capital.”

Hiring at board level presents constant challenges, but the type and scale of this depends largely on the wider economic outlook, according to Leyla Tindall, director at recruitment firm Tindall Perry. “During the recession, the main problem for businesses was cost, with SMEs in particular looking to save as much as possible to retain financial stability. However, as we have seen, a buoyant market presents a different, but no less important, problem.”

Tindall’s experience suggests that that, with companies now looking towards growth instead of consolidation, the job market among those with the CV that would make them ideal as a director of a small business has picked up considerably over the last year, and is beginning to move extremely quickly.

“Candidates are now jumping at opportunities, meaning an ideal board member is hard to come by,” she explained. “With talented candidates in short supply, businesses are finding that the typical lead time for making an appointment at board level is between six and 12 months. It’s an extremely competitive market, and the balance of power has firmly shifted towards the candidate.”

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However, according to Leyla Tindall, there are a number of things that SMEs can do when looking to make a senior hire. “The challenge is to offer an appealing proposition in a clear and concise manner, ensuring that candidates understand not only the role, but the wider strategy of the business,” she added. “As such, a structured and pacey recruitment process is essential to secure the best talent.”

In order to ensure that a coherent message is put across when an SME is advertising a board role, it is vital that all stakeholders are involved in the process of creating the job description and researching potential candidates. “With this in mind, businesses should be open and honest about their current size and growth plans, and understand how this will tie in with what candidates are seeking, either financially or through career development,” explained Tindall.

She said: “With speed of response now critical, we are seeing a vast increase in larger SMEs looking to develop their in-house recruitment capabilities, in order to ensure that they do not miss out on their ideal target.

“Smaller SMEs are also recognising the importance of recruitment, with many outsourcing at board level. This trend demonstrates that businesses understand that they simply do not have the time required to go through the process of making senior appointments. In particular, outsourcing offers SMEs as much or as little input in the process as they require, while ensuring that the business can act quickly enough to secure the right candidate for the right role.”

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