Offered a Non-Exec Director Role? Ask These Questions Before You Accept
Posted on 31/12/2014
First published in Business Today
Are non-exec directorships as good as they sound? Nick Stephens, executive chairman of life sciences specialist RSA Group, explains how to find out before you sign up.
Being approached to consider or, better still, being offered a non-executive directorship for the first time is usually received as a compliment, or even an honour, and it might seem churlish to refuse. However, as with many other “firsts” in your life, it’s important to think through the consequences of saying “yes” before you commit.
It is likely that your career to date has been successful; you’ve scaled the corporate ladder quickly and even jumped a rung or two. You probably had your first “director” title a long time ago – especially if you worked in a US-headquartered company – and you may never have had the possible consequences and demands of being a “real” director explained to you. Although no director I have placed on a board has ever been (successfully) sued or prosecuted for their actions on a board, the risk is real and present. The Corporate Manslaughter Act penalties for directors can range from disqualification (from acting as a director in any company) to personal fines and asset seizure, and even up to life imprisonment.
The rewards of being a non-executive director are many and varied – personal development, strategic involvement and influence being three. Enormous financial reward, however, is usually not the fourth. In fact, our 2014 non-executive director survey showed average fees to be £25,964 in UK private companies and £72,189 in public companies.
To protect yourself and ensure you are taking the right step, ask yourself questions that relate to risk and reward before taking up a board position:
1. Do I understand my duties and responsibilities as a director? These are broadly similar in both private and public companies, but a little more onerous for directors of public companies. The Institute of Directors (IOD) outlines the responsibilities of directors of UK companies very well in its factsheet, “The duties, responsibilities and liabilities of directors”.
2. Is the company solvent? If not – walk away!
3. In light of questions 1 and 2 (above), am I prepared/ready to be a director? I thoroughly recommend reading Bob Garratt’s recently updated book, “The Fish Rots from the Head”, before you answer this question for yourself. The IOD also runs excellent courses for potential directors. I was one of the early beneficiaries in the mid-1990s, and I strongly recommend that every new director put themselves through these, even if they cannot persuade their company to fund it.
Your time is valuable, so you need to ask:
4. What are the fees on offer for this position?
5. What will the role prevent me from doing over the next 3–5 years?
Take into account possible conflicts of interest, the time commitment for meetings, the committees you will serve on and the time you will need to take outside formal board time to read board papers and talk with other (executive and non-executive) directors.
Your experience, network and opinion are valuable, so ask:
6. Why did the “vacancy” arise?
7. Why do they want me and what do I bring to the existing portfolio of skills on the board and that it needs for the formation, assessment and delivery of the company’s strategy?
You need to enjoy your role, so ask:
8. Can I work with the other directors?
9. What else could I do with the time/to earn the money?
10. Will the company pay for D&O insurance?
Nick Stephens is Executive Chairman of RSA, the global leader in life sciences executive search and interim management.