George Pennock, partner at Four Seasons Ventures looks at the challenges of choosing the right non-executive director for your SME
Growing a small business is tough, sometimes really tough. The best entrepreneurs seek out all the help they can get and that includes their non-executive director (NED) hires.
So, what are the key qualities you should seek when choosing your NED? Right up there should be curiosity, confidence and the courage and the capacity to challenge you and your team. If you don’t want to hire someone with these traits, then your NED may end up being nothing more than window dressing and you won’t be getting the honest advice and support you need to grow your business.
Does your NED need to be experienced in the sector your business operates? While this is not absolutely critical, the reality is that without some specific sector understanding, it will take much longer for them to get up to speed on your business and market and gain the respect of your senior team. Several highly experienced NEDs I spoke to recently described a key part of their role as “helping remind the senior team what good is”. While this may involve bringing in expertise in a skill set where the company has some gaps (maybe sales or finance) and helping recruit and mentor the right new team members, without a strong understanding of the underlying marketplace you operate in, this advice and support will be of limited value.
Do your due diligence on your prospective NED. Ideally, they will have worked for an SME in a senior role or sat on an SME board previously. If not, consider if their ‘big company’ experience will be appropriate to the hands-on challenges you are facing. Use a data tool like the Pomanda Scorecard to research the performance of the SME’s they have been involved in (www.pomanda.com/solutions/scorecard). Dig into their CVs and challenge them on what they did to help a business succeed. Speak to their former colleagues and/or board members to find out what they were like to work with.
Challenge them on how much time they can commit to the role. This will depend to some extent on their other commitments and the stage they are at in their career and life. While the old adage “if you want something done, give it to a busy person” often rings true, do check to see just how many boards they are on (www.pomanda.com/solutions/companyinformation). Several recent corporate scandals might have been prevented had some of the NEDs not been quite so thinly spread. Remember, that the great NEDs are the ones who put the legwork in between board meetings not just at board meetings and who can make themselves available whenever needed. If they are going to become a true sounding board, then you need to be able to speak to them at short notice without feeling you are interfering too much in the rest of their lives. The reality is that a crisis never strikes at a good moment. If it happens to strike in August and the NED has told you they are away with their family and not contactable for the whole of that month, then they are not the right person for the job.
Insist that they invest cash in your company, and also receive some of their compensation in options. As an entrepreneur who is depending on their advice and commitment, you want to know they have ‘skin in the game’ and are aligned with you in terms of your focus on capital growth. How much they should invest is a question that largely depends on their own wealth and liquidity, and also your requirements. However, a good guide might be to ask that they invest an amount that they can afford to lose, but that they would definitely rather not.
Agree a time horizon for their role and shared goals within that time horizon, so they go into the role with their eyes open. This might involve achieving an exit, or hitting certain operational benchmarks like doubling sales, winning specific new customers, achieving a certain level of profitability or paying down your bank debt.
Finally, remember the words of Mark Zuckerberg: “I always tell people you should only hire people to be on your team if you would work for them”. This mantra is especially true of your NED hires. You need to be able to respect your NED, professionally, intellectually and morally. You need to be confident that they won’t sugar coat their advice, or pander to your ego, while also knowing that they will always be there to support you calmly and constructively during the tough times.
This may seem like a lot to ask of anyone; and in truth it is, but quality NEDs just don’t grow on trees. Put the effort into finding the right person and you will reap the rewards and acquire a long term trusted companion with whom to share the road to success.