Why is being a non-executive director so difficult?

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Andy BallardThe Institute of Directors recently published a factsheet called: “The role of the non-executive director”

It says:

“Essentially, the non-executive director’s role is to provide a creative contribution to the board by providing objective criticism.”

It adds:

“Non-executive directors are expected to focus on board matters and not to stray into “executive direction” thus providing an independent view of the company that is removed from day-to-day running. Non-executive directions, then, are appointed to bring to the board:

• Independence
• Impartiality
• Wide experience
• Special knowledge
• Personal qualities”

We are also given some helpful guidance in the National Housing Federation (“NHF”) Code of Governance (2015). Referring to the broader board (as against non-executive directors alone) Section B1 of the Code confirms:

“The core purpose of the board is to determine vision and strategy, direct, control, and scrutinise an organisation’s affairs. Where the organisation has staff, operational management of the organisation must be delegated to them, and the board must hold them to account.”

On the face of it, it all looks quite simple and straightforward. The board govern; the executive manage. Understand boundaries. Don’t step over the line.

However, it is relatively easy for the line between executive and non-executive matters to become blurred. The risk increases with unitary boards comprising a mix of both executive and non-executive directors.

There is no clear simple line that says this is a matter for the executive and this is a matter for the non-executive or the broader board. By way of example, would you normally expect the board to be informed or updated about a junior colleague’s dismissal? Probably not. It is an operational matter. However, if that dismissal was in respect of an allegation of discrimination or whistle-blowing that went to the heart of the organisation’s mission vision and values – then perhaps the board should know. The line moves from case to case and will often be guided by the issues identified on the organisation’s Risk Map.

The situation becomes yet still more complicated as the sector moves to greater “professionalism” at board level. Many boards appoint professional people with specialist skills and expertise to help govern:

“Establishing, overseeing and reviewing a framework of delegation and systems of internal control” (See NHF Code of Governance paragraph C1(7).

With the move towards smaller boards meeting more frequently and “professional” boards, there may be a tendency for non-executive directors to step in and become involved in what is an operational matter. By way of example, if you were an employment lawyer sitting as a non-executive director on a board, and the board’s lead on equality and diversity, you may inadvertently get drawn into the dismissal debate above. Should you get involved? Subject to the terms of reference for any relevant sub-committee and to risk – the short answer is probably “no”.

If non-executive board members do get drawn into operational matters a number of problems arise:

• You will inadvertently undermine executive colleagues
• It will look like you and/or the broader board do not have confidence in your executive
• Needless tension will be created
• Fellow board directors may pass responsibility for all similar matters to you
• You will probably not be insured professionally!

The solution is to understand and recognise that this can happen. For the most part it is not a deliberate attempt on the part of the non-executive director to become involved in operational matters. It happens! In such cases it is essential for the chief executive, the chair and the non-executive directors concerned to sit down and to openly discuss issues and to reset boundaries as soon as possible.

Take it to a Board Away Day – list it as an issues under:
“What does a high performing Board look like”

We are all on the same team.

Andy Ballard is an Associate Director at Altair, and can be contacted on andy.ballard@nullaltairltd.co.uk | 07974 733 334.