The critical friend – appointing non-executive directors

Non-executive directors are usual on the boards of most biotech companies. In some cases their appointment may be a condition of the investors but beyond that they bring objectivity and a weathered eye to the Board. But in appointing non-execs its important to have clarity around what their contribution is expected to be, says James Cowper Kreston’s Sue Staunton.

There are many people who may offer their services as non-executive directors but appointing the right person at the right time with a very clear brief is, however, essential if it is to be a beneficial relationship.

A rapidly expanding business, even with a good management team, will tend to be focused on the day-to-day running of the business and the near horizon - managing what are likely to be limited resources to achieve the company’s short to medium term objectives. NEDs allow a business to bring in a high level, experienced resource that might otherwise be out of financial reach, and who can contribute sectorial expertise and good PR by association.

Selecting NEDs

Time and consideration should always be taken when selecting NEDs. As with all executive appointments, all Board members should be involved in the process.

The first step should be an evaluation of the qualities of existing Board members. Identify the skills or knowledge gaps that exist, as that should help shape the appointment and provide some indication as to the role the NED is to play in the business.

In addition to the skills and experience a NED brings, they should also be capable of providing a truly independent and an impartial view of a Board’s decision-making process whilst strongly identifying with the company’s aims and ambitions.

Unsurprisingly, the background and career history of a potential NED will be critical and will be dictated by the company’s plans. They may need Big Pharma experience - someone who can advise on how to do deals within that sector; they may require experience within public markets if the longer-term ambition is to IPO. It may well be that a company will require different NEDs as it goes through different phases of its development.

Certain personality traits are always going to be helpful. Pragmatism and the ability to compromise, for example, will always be desirable, as will diplomacy and the ability to communicate with clarity, objectivity and brevity.

Identifying the right candidate can take some time, but use personal and professional contacts to help with the appointment; identify people within your sector or stage of business who might potentially be able to contribute. Fellow board directors or other professionals might also be able to recommend or make introductions to potential candidates.

It’s important also to consider other appointments they might have and whether these would conflict with or complement their ability to work with your business; an industry specialist, for example, may well already hold similar roles with competitors. It is always sensible to consider whether their other commitments will provide them with sufficient time to contribute effectively.

It is also important that the Board agree what is required of your non-exec and how they are to be remunerated. Are they just to attend Board meetings, or to provide more hands-on support? Will they be paid on a time basis or on a fixed fee?

Working with NEDs

For NEDs to be effective, they will need to build their knowledge and understanding of the business quickly. It is considered best practice to provide some form of induction that will enable them to contribute quickly to the Board.

Do provide the NED with all of the financial and commercial information needed. Arrange for the NED to meet with any external investors and/or shareholders, and arrange any relevant site visits. Consider also interaction with middle and other senior management positions. NEDs must be equipped to do the job that is being asked of them.

Recent changes to corporate governance codes have focused the role of NEDs more towards challenging senior executives. This should not be seen as a move to a more negative role, but more towards challenging the thinking and decision making of senior executives. A good NED will know when to challenge, and keep challenging, and when to hold back.

And for the aspiring NED - a checklist of considerations when asked to join the Board:

  • Is the business plan of the company credible?

  • Do your skills match with the requirements of the company at this stage of its development?

  • Have you got sufficient time to commit to the company and its likely requirements?

  • Be clear on your expectations from the relationship and what you will require to do your job.

  • Ensure that the company is prepared to provide you with all of the information you will require.

  • Be clear what role the existing Board really want you to do and be careful of being a ‘token’.

  • Always be aware that being a non-executive director carries with it many responsibilities and your reputation can be affected by the company’s fortunes.

Sue Staunton is a Partner and Head of Technology at accountants and business advisers, James Cowper Kreston. She can be reached by email: [email protected]. Visit

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Comments 1

  1. ed

      |   reply

    why would anyone with any sort of reputation or ubringing want to be an NED on AIM which is quite rightly referred to as a cesspit for bucket shops and broker behaviour which no decent or half decent individual should participate - raising of death spiral finance via companies such as yorkville ( subject to criminal charges in the USA ) and other firms like darwin have diluted investors hard earned money to utter confetti with no director participation in the the placings - just look at the shareprices of SAR or PYC

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