UK: WELCOME HOMEWORK FOR NEW FACES ON THE BOARD. - Ample preparation makes for useful non-executive directors.

Last Updated: 31 Aug 2010

Ample preparation makes for useful non-executive directors.

A new non-executive has been appointed to the board. How much time must elapse before he can make a useful contribution to its deliberations? John Viney, chairman of head-hunters Heidrick & Struggles, reckons that, 'It may take him six to 12 months to find his feet'. The better the induction process, Viney argues, the sooner will the new man/woman be able to play a full part. This view is shared by many businesses, especially those at the bigger end of the scale which often give their boardroom recruits extensive preparation. 'Formal processes of induction are almost mandatory among Footsie 100 companies,' notes Yve Newbold, chief executive at Pro Ned.

Mid-way down the FTSE-100 table, GKN has the usual standard procedure for inducting boardroom appointees. Every incoming NED receives a fat 'welcome pack' containing reports and accounts, past board minutes, memoirs, guidelines, directors' code, house rules on share dealing, and so on - 'with enough information to form a working picture of the company,' says its secretary Grey Denham.

But size is not the only factor bearing on the welcome given to NEDs, Viney points out. Much depends on the complexity of the operation, and even more on the disposition of the chairman or chief executive. In spite of its teeming subsidiaries, Coats Viyella barely squeezes into the top 150 UK companies measured by market cap, but it is as thoroughgoing as any. Every new independent director not only gets all relevant papers - corporate plan, performance records, audit reports, etc - he will also have a one-to-one session with every executive director and with key staff like the head of planning; and he will visit most major locations, at least in the UK.

'After three months,' says chief executive Neville Bain, 'he will be familiar with (1) the businesses and issues, (2) key people, and (3) the physical sites.' Lord Owen went through this introduction a couple of years ago; Keith Merrifield, late of Wellcome, is just coming to the end now. Even GKN doesn't send NEDs on 'whistle-stop tours' of its factories: 'I think they might have difficulty fitting it in,' says Denham. But twice a year the board meets in one or other of the plants (once in the UK, once overseas), which enables directors to acquaint themselves with local operations and managements.

Costain Group (which is not in the FTSE-100) believes in flexibility, according to company secretary Peter Nicoll. 'The degree of induction that non-executives get is a matter of what they and we feel they need,' he explains. They may - or may not - have separate conversations with operational directors, for example. That would not satisfy Bain, who has lately written a book on corporate governance and finds current practice lacking where it relates to new NEDs: 'To ask, "What do you want, and the company secretary will arrange it?" - I don't think that's anywhere near good enough.' Costain would argue that its business is far less complex than Coats', that the issues are predominantly financial, and that all its NEDs are, or have been, directors of other public companies, so they know what's involved.

But what of the smaller public companies - and myriad privately owned ones - whose independent directors (if any, in the latter case) are likely to be less experienced? David Treadwell, who runs the Institute of Directors' boardroom placement service, points out that 70% of such appointments are made as a result of personal contact - and possibly without much thought to the relevance of the individual's particular skills. 'Here it's much more hit or miss,' says Pro Ned's Newbold.

In the absence of an audit committee, the new NED may well be handed a copy of the last accounts and allowed to sink or swim. Very often however he or she will be a banker, accountant or other adviser, who already knows a good deal about the business. If not, Newbold advises, the appointee should be extremely diligent - when conducting his own 'due diligence' - before accepting the appointment.

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