In the City
The non-executive director
Tony Rudd
To lend tone to what would otherwise be a vulgar melee: that, to many observers of the commercial scene today, would sum up the role of the non-executive director just as much as that of the cavalry in the modern war. For what are they really for, but to add not just tone but credibility to boards of directors which would otherwise cut little ice? A retired air marshal here, an exambassador there and a landed title in the middle never came amiss to any boardroom of a medium-sized manufacturing company seeking to improve its status in the cities.
These thoughts were prompted last week by attendance at a working lunch given by a leading firm of consultants devoted to exactly this subject — that of the role of the non-executive director. It was clear from what emerged that the role differs fundamentally depending on the size of the company concerned. For the large company which is well established it is about contributing to strategy, while in the case of the smaller company it is very much to do with the conduct of the company itself.
In the case of the large company the non-executive is meant to contribute experience of the wider world, an impartiality derived from freedom from the day-to-day chores and an ability to look at the whole thing on the larger scale. That's what is meant to happen. It can be a useful function, but only to the extent that the executive directors allow scope for such discussion in the first place. Too often, even if they allow it, they ignore it and on occasion have a second if informal board meeting after the real one when, freed from the bother of the full board, they get down to making the real decisions. Or is it the case that the company by its very nature really hasn't any scope for strategic decisions?
Many of our major companies today are either engineering, steel, textile or chemical companies and they can't really shift out of what they are in. Only those blessed with the proceeds of, for instance, the sale of some part of their operations which have been nationalised have scope for strategy. For the rest the object must just be survival.
In the case of the smaller company the role of the non-executive director is usually, first and foremost, to bring home to the executive that operating as a public company they no longer have the licence and latitude that they used to have when they were private. Getting them to understand the change in their obligations can be almost a full-time occupation for the nonexecutive director. Past this point it is this correspondent's view that the influence of the non-executive director in the board room is in inverse proportion to the success of the company concerned. When it is doing badly the non-executive suddenly becomes rather important. If it does really quite badly he can expect a sudden visit from ashen-faced executives in need of financial reassurance, a stiff drink and perhaps a new girlfriend. If things go from bad to worse, the non-executive can be landed with the company, as the executives succumb to what the Royal Air Force used to call 'lack of moral fibreand virtually disappear from operations. In that event the non-executive has his moment of supreme power, which is to be responsible for the appointment of a new executive.
Once the company starts to do better and the executive, either that which has survived or the newly installed lot, regain their nerve, the non-executive director begins to take his rightful place, namely at the back. If over the years success crowns the achievement of the board, then it can be the case that the non-executive is pushed further back, to the point indeed where, there's really no room left for him to take any more rearward steps, at which point he reaches the logical conclusion of his tenure, and is quietly fired. For it is noticeable, certainly by this non-executive director, that executives when they have finally won through and have brought their company into the happy uplands of financial and material success, do not want any of the old bolsheviks around. When they appoint a merchant bank, and seek new nonexecutive directors and establish contacts at an altogether higher level in the City and in Whitehall, the last thing executive directors want to have around are people who have seen them in the old days and know about (and might even refer in board room discussions to) the tricks which they had to get up to to survive. A clean sweep and a new set of non-executive directors are the things which they wish to achieve.
Is he really worth having around at all then, the non-executive director? The answer must be yes. The tendency towards becoming a self-perpetuating oligarchy is present at all times amongst executive directors, particularly these days when the majority of large companies are controlled not by small shareholders but by institutional investors who tend to leave boards of directors strictly alone. Who else is to tell the executive director. from time to time that he is wrong? Certainly not the shareholders. And if it has to wait until inspectors are appointed by the Department of Trade, the whole thing may be too late anyhow. Their role, therefore, is to remind executive directors that although it appears that they owe nobody any responsibility and it seems to them that they are imbued with an uncommon far-sighted wisdom denied to practically all men, they are in fact human and liable to just as many gross errors as the rest of us. This being their classic role, they will never of course be popular if they are any good at their job. There must be an inherent instability in their position: the better they are the more likely they are to be fired in the long run. The only suggestion that one can make to improve their lot is that they should form themselves into an association, affiliate to both the CBI and the TUC and hold an annual conference at which they should present case histories taken from their experience of what it is really like in the board rooms of British industry. Put together by a really imaginative literary agent the latter, in the form of the ten best case studies each year, could be a sell-out on the bookstalls.
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