Small and mid-cap companies represent the vast majority of all companies on UK stock markets so the perception of the NED role as ‘static’ does not reflect the dynamic role they perform in growth companies.
This is one of the key findings reported in new research from Henley Business School, sponsored by the Quoted Companies Alliance (QCA) and Downing LLP. The research paper – Non-Executive Directors Role and Contribution to Growth Companies – finds that the role NEDs play in small and mid-cap companies is significantly different from that in large companies.
There is an established view of NEDs in terms of policy, regulation, select committees, corporate governance literature and how they appear in the media. In corporate entities the executive is often portrayed as dynamic and controlling, while NEDs are correspondingly seen as ”‘static”, say Henley Business School.
In large companies NEDs may occasionally challenge, but their primary function is receiving and working through information and offering some occasional mentoring.
The traditional model does not fit growth companies where NEDs need to adopt a more dynamic role. They contribute to strategy development, are involved in corporate actions, and actively mentor the CEO and executive team. Small and mid-caps represent some 90% of all companies on the stock exchange, and so the view of “static” NEDs applies to only 10% of the market.
The findings show not just a stark difference between small and large, but also insights about how the role, and skills required, of NEDs in growth companies vary greatly. Size, complexity, type of ownership and stage of development all have an influence over the type of Chair and NED that can add value.
Dr Filipe Morais, Henley Business School:
“We wanted to examine the very different and vital roles that NEDs play in some of the smallest and largest companies on the stock market. Our findings illustrate the stark differences between organisations based on size and highlight how NED skills vary greatly across growth companies. In growth companies it’s not about the process or policing, it’s about active participation and enabling.”
Tim Ward, Chief Executive, QCA:
“What this report shows is that the role of a NED in a growth company can be extremely varied, largely depending on a company’s size and prospects. Boards, investors, and NEDs themselves need to scope NED roles correctly to ensure they are facing in the right direction for the individual company.”
Judith MacKenzie, Partner, Downing LLP:
“As small company investors, we are experienced in dealing with NEDs, and their quality varies greatly. This report should provide both chairs and boards with a clear framework and direction when selecting and appointing NEDs that can add value and drive their company’s long-term growth. Importantly, I think the real ‘bite’ is that it underlines the serious consequences of failure to act within the law and the regulations.”
The report is available here.
