Saturday, July 18, 2009

NEDs - a response to the FT's article on David Walker

Sir David Walker has suggested 39 steps to better corporate governance. Doubling NEDs days from 20-25 per year is one of them. The Financial Times characteristically sees barriers to this great suggestion:

"The calibre of people required and the increased amount of time each will have to dedicate to individual directorships under the proposals will inevitably lead to concerns about whether there is a sufficient supply of mature professionals to fill these roles" (Financial Times, July 18/19 2009, p 13).

Currently it is true that many non executive directors have several positions which means they cannot dedicate themselves properly to all the positions they hold and could not double the days they commit to their NED positions. However, this situation comes about not because companies cannot find good people to be their NEDs but because networks are strong at this level in the business world and people like working with people like them, everyone likes to fill positions with people they can trust, and people who come highly recommended by someone you know are often trustworthy by proxy. Further, selecting people from within trusted network eliminates the time and expense required to do a thorough search. If organisations limit the number of non executive directorships their non execs can hold, each NED will have more time to do a better job. Although there has been a lot of noise about this topic over the years, the reality is that many NEDs still hold too many positions.

The vacancies created by reducing the number of positions NEDs can hold, or doubling their time commitments so they are forced to give up some positions can be filled - easily. The reality is that there is a glut of talented and experienced people to fill these roles who do not have an outlet for their creativity and skills and who cannot get NED positions because they are not in the right networks. There are literally of hundreds of independent consultants many of whom were senior executives in top firms and have opted for whatever reason to work independently. They would be fantastic NEDs. The pool grows bigger when you factor in the women who have held senior positions, who are not working in order to look after their children, and who would love to have a challenging job that only took up 2-3 days a month.

People do not have to have decades of experience in the industry of the company for which they are an NED. That is what the board is for. However, NEDs must have fine minds, they must be able to formulate questions, drive for answers and resist the temptation to cosy up to the CEO and other members of the board. Above all, the Western virtue of courage is what is required: courage to admit when you don't understand something and to make sure you get the answers you need before you take decisions. Given most bankers have admitted they did not understand the instruments they were trading, the only conclusion we can draw is that, even at the NED level, they did not have the courage to admit, in public at least, that they were in the dark.

To the FT and to those who would have the system remain unchanged the message is this: if you use the same people you will have the same answers, the same approaches, and the same problems - whether or not you cut their pay, double their pay, cut their days, or double them. If you always do what you have always done, you will always get what you always got.

Try harder people: To force companies to get new blood, every board should have one NED who has never been an NED before. This system of apprenticeship ensures we have a sustainable model for developing good NEDs. It also ensures there is new thinking on every board at least for a little while. As spaces become vacant, they should be filled by someone who is new to the NED role. Go and find some talented and experienced professionals who are currently outside the banking system and ask them to be NEDs. Try it for 6 months if you don't want to commit to it - you have absolutely nothing to lose. And that is a great return on your risk. If you need some help, call me - I know plenty of people who could fit the bill. Or, better yet, contact one of the following companies all of which have fantastic talent pools in which you can fish:

Eden McCallum (

Sapphire Partners (

Holker Watkin (

a-connect (

An insufficient supply of mature professionals? Give me break. You just don't know where to look.


  1. Did you send to FT? Presume have letters page?

  2. They do and I have done so. Thanks for idea.

  3. Lovely post. We've just done some research about charity trustee boards, and surprisingly, they have very similar problems. Just blogged about your post:

  4. Thank you Eleanor. I am serious when I say there are lots of people out there (including me) who would be thrilled to take up an NED position - and many would do it for no pay (if it was a worthy cause) just to get the experience. I hope your clients will find the contact list helpful. Jane

  5. I agree with you: the biggest corporate failures in the UK - RBS and HBOS - had strong non-execs with long track records, and look where it got them.

    Having looked at the main points from the Walker review (curiously, I haven't found a list of all 39!), I doubt that adherence to these would have protected those companies: whilst improving board functioning and risk management, I dount they'd have stopped the cavalier management by Sir Fred Goodwin.

    What would be needed is a change of corporate culture - and a stronger outside view might provide the insight necessary.

  6. Thanks for your comment, I could not agree with you more. I am somewhat fed up that Fred got all the heat (clearly he deserved heat) and there was barely any mention of the non execs who clearly did not do their jobs to keep him in check. Everyone I know who worked with Fred does indeed say that he was a nasty piece of work, but if you cannot do your job and you cannot change the situation, surely you are duty bound to quit or (gasp) blow the whistle?