Non-executive directors (NEDs) were once famously dismissed by Tiny Rowland as 'Christmas tree decorations'. But now, urged on by the Hampel Committee's emphasis on their importance for good corporate governance, NEDs are in much greater demand. So how do you find a good one?
Companies are increasingly turning to head-hunters. Barry Dinan of consultants Hanson Green says that his firm treats the search for a good non-executive director in exactly the same way as a trawl for any other director. 'There is a lot of demand for non-executive directors, but for every 100 we get, only one usually measures up.' Hanson Green has three key criteria in the search for the fortunate few. The desirable non-exec will usually be less than 60 years old, will be currently running a big business and possess talents essential to the company.
The inevitable effect of tighter criteria means that, once the ranks of the top 250 chief executives have been quarried, the supply of top-notch NEDs begins to dry up. Finance directors are usually the next port of call followed by divisional managing directors. But some feel that any supposed dearth of quality candidates simply reflects a lack of imagination on the part of the companies who are looking for them. Recent research from GHN Executive Coaching and MORI highlights the rarity of female NEDs, for example.
'We have heard about the apparent lack of non-executive directors. But in my view there is a huge untapped potential. Boards and search consultants need to broaden their horizons.' says Guy Lubb, head of corporate governance at Standard Life. Indeed, this was a point taken up by the Hampel Committee, which suggested that companies spread their nets beyond the shallow pool of boardroom heavyweights to remedy the lack of candidates.
Some already have. Yorkshire Water, for example, under pressure from OFWAT over its community relations took the unprecedented step of appealing publicly for suitable non-execs. Others also feel that looking beyond the inner circle is essential. 'We don't find a shortage. The real problem is balancing the client's needs with the skills of the non-executive,' says Tim Owen of Manchester based consultants HMA Partnership. 'Retired bank manager types are a complete dead loss. We look for rounded businessmen with entrepreneurial flair. This hope doesn't always sit comfortably with the board but they can be invaluable for a smaller, expanding company.'
But despite the spread of corporate governance fundamentalism, there is still some disquiet inside and outside the boardroom about the ways NEDS are appointed. The GHN Executive Coaching research suggests that in 80% of companies it is the chairman alone who makes the decision. 'Don't let the chairman appoint one of his friends' is a golden rule in the fight against cronyism in the boardroom but, says Lubb: 'The problem is that as shareholders we simply don't know ... Companies shed little light on how the nomination process works and it is kept at a much lower level of transparency than, for example, the activities of remuneration committees.'
Anne Simpson, joint managing director of shareholder pressure group PIRC (Pensions and Investment Research Consultants), believes that the vast majority of appointments are still essentially made in the old-fashioned way. 'The traditional method is to get the chairman's Christmas card list and ask him who he would like. The more politically correct way is to set up a nominations committee which sets out a job specification and contacts a firm of consultants. But at the end of the day, the search may well still finish up back on the golf course.'.