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Latest research shows that non-executive directors of smaller companies are likely to quiz corporate governance principles, while those on the boards of larger companies will lead on integrity.

The research delves into what makes an outstanding non-executive director, and also shows that most successful non-executives will spend more time mentoring and developing colleagues and lead on corporate governance standards.

The findings by Henley Management College focused on outstanding Non-Executive Directors (NEDs), who turned around their companies and is part of the Non-Executive Director Awards sponsored by KBC Peel Hunt3i PLC; Henley Management College and Pinsent Masons and the Sunday Times.

Judges, including Miles Templeman, director general of the Institute of Directors, found that leading non-executive directors also promote investors’ confidence and ensure good returns to investors. They spend significant time mentoring, developing and advising their colleagues and are very effective listeners, showing emotional intelligence. They challenge and probe colleagues, especially the executive directors and are critical thinkers.

A ‘check list’ of desired characteristics emerged from the findings for non-executive directors. These include:

+ high integrity
+ high ethical standards in their own behaviour
+ acting as a mentor or advisor
+ spending time developing colleagues
+ critical faculty and a clear, critical thinker

Personal characteristics for NEDs also depend on the type of company, whether Private, AIM, or on the Main Market.

Private

Research showed that being an effective negotiator and spending time building relations with new investors are more important for NEDs from Private Companies.

AIM Companies

AIM companies’ NEDs are more likely to challenge corporate governance principles; to be exemplars of integrity and high ethical standards in their own behaviour and to support the CEO on financial matters; and to act as a mentor or advisor.

Main Market

NEDs from main market listed companies were also more likely to lead on integrity and high ethical standards; on strategic restructuring, often with an emphasis on the core business; to promote investors’ confidence and returns; and to drive financial performance.

‘The focus on how companies can benefit from their non-executive directors has been encouraged by the latest Combined Code of Corporate Governance, which requires directors to be developed without stating exactly how. There is no doubt that those companies with NEDs who are actively involved are more successful than those who might take a back seat. The secret is finding the right person,’ says Adam Hart, head of business development at KBC Peel Hunt.

Contact :

KBC Peel Hunt
Adam Hart 0207 418 8900
Pelham PR
Polly Fergusson 020 7743 6362

Winners of the inaugural 2006 KBCPH NED awards:

Dr Mike Carter, NED, Kudos Pharmaceuticals Ltd – privately owned company
John Barnes, NED, La Tasca Group Plc – quoted Company on AIM
Paul Myners, NED, Marks & Spencer Group Plc – quoted Company on official list

The Research

Research was conducted by Prof Victor Dulewicz, Dr Keith Gay and Prof Bernard Taylor from Henley Management College on outstanding NEDs who have created great value and/or helped turn around their companies. Information was gathered by questionnaire and the criteria for the nomination process were derived mainly from the requirements for an effective NED as set out in the Higgs Report. Full results were presented in a paper to the 9th international conference on board leadership and corporate governance in October 2006.

The NED Awards – judging process

The short-listing process was conducted by three judges from Henley Management College who selected the top eight NEDs in each category. The final selection panel consisted of 12 judges from the sponsoring organisations and from major Business, Professional and City institutions - the London Stock Exchange; the Institute of Directors; HSBC Bank; Schroders; Invesco; the Better Regulation Commission and BDO Stoy Hayward. The judges assessed the eight short-listed in each category on information from nominators; additional information from fellow directors; financial information on company performance; and recent press cuttings.

Further analysis showed that some characteristics were predominantly from one ownership group, i.e. Private, AIM, or Listed Company. It emerged that being an effective negotiator and spending time building relations with new investors were more important for NEDs from Private Companies. AIM companies’ NEDs appeared more likely to challenge corporate governance principles; to be exemplars of integrity and high ethical standards in their own behaviour; to support the CEO on financial matters; and to act as a mentor or advisor, although the latter was also common amongst those from listed companies. NEDs from Listed companies were also more likely to lead on integrity and high ethical standards; on strategic restructuring, often with an emphasis on the core business; to promote investors’ confidence and returns; and to drive financial performance.

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