Advice for future Non-Executive Directors (NEDs) from the Institute of Directors (IoD)

In preparation for a series of interviews with Non-Executive Directors (including independent ones i.e. iNEDs) for my profession’s magazine, I’ve been doing research around the topic, and came across a helpful report by the Institute of Directors (IoD) in South Africa. The report is based on an online survey by the IoD on the recruitment, selection and appointment process for NEDs. It also references a spread of international reports for those interested in wider reading, and concludes with an overview of advice for potential NEDs and advice for nomination committees themselves. 

In this article, I focus on its advice for individuals rather than the companies. Some of the advice is specific to NED roles (such as treating the interview as a discussion among potential peers), while some is relevant to general job applications as well (such as tailoring your application to the role and its requirements). In future months, we’ll share with our readers aspects of my interviews with individual NEDs, their career journeys and their tips for others considering becoming NEDs too, alongside publication of their profiles in the professional magazines.

​Read more to explore the reasons companies search for new NEDs and where they look, the attributes required of NED candidates, and the IoD’s advice on preparing your application, preparing for the interviews, considering an offer, and adding value once on board.

The IoD supports a rigorous screening process for NEDs and a thorough evaluation of their abilities to serve on a governing body. Yet, it shares that a pertinent question for many of its members is how to successfully secure these opportunities – as some express concern about perceived barriers to appointment, the Institute embarked on a project to gather insight into the processes used by companies, combining an online survey with a literature review. 44 companies responded to the survey on identifying, nominating, appointing, and retaining NEDs.

The IoD explains that the most prominent reason for companies to search for new NEDs is a skills gap in the current board. Rotation and/or retirement of existing members, the need to improve race and/or gender diversity, and/or the need for specialised skills for a specific board committee were also highlighted by more than half of the respondents. In contrast, some companies explained that they are continuously in search of talented NEDs as part of their succession planning for the board. Indeed, a succession plan including identification, mentorship and development of future candidates is good practice. Given this, candidates should keep their public profiles up-to-date and participate in building relationships with existing board members even if there is no immediate opportunity.

Many companies use their current board’s network to source new NEDs, as well as personal recommendations from executive committee members and other trusted sources. Roughly a third cited use of headhunters, although a respondent noted that “headhunters are still seen to be exorbitantly expensive and lacking the knowledge to ensure that important aspect of cultural fit”.

The IoD warns that using internal networks can be a barrier to entry: “not only does it result in the closed network of NEDs being overcommitted to the number of boards that they are appointed to, but there is also a risk that companies may perpetuate a stagnant, inward-looking, composition of NEDs in the boardroom”. Cultural fit is given as the reason for relying on personal recommendations from existing networks i.e. it provides cultural comfort and reassurance about the candidate’s abilities. The IoD explains that for good governance, “sourcing strategies [should be reassessed] to maximise board diversification through the incorporation of untapped skills, knowledge and experience amongst new NEDs who may not be discernible through existing internal social or professional networks”. 

Attributes required of NED candidates
Based on the survey results, the most important personal attribute required of a candidate is independence, followed by board cultural fit, and critical thinking. Emotional maturity and interpersonal skills, and traditional skills, knowledge and experience are included in the top 5, and personality/attitude, board experience, availability for active participation, leadership and communication skills rounded out the top 10.

Independence is necessary to provide unbiased oversight of the company’s management and decision-making (the key role of a NED). The King Report on Corporate Governance, a booklet of guidelines for the governance structures and operation of companies in South Africa, defines independence in its fourth revision (King IV, 2016) as having no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making. Potential conflicts of interest must be avoided or immediately declared to the board for discussion, resolution and continued oversight if necessary. 

Independence… goes beyond lacking conflicts of interest, and includes independence of thought and the ability to consider matters from different perspectives. Creative, innovative, and solution-driven mindsets are key to adding value to the board. In support of critical thinking, candidates must take responsibility for their continued professional development and maintenance of expertise. Traditional and/or non-traditional corporate skills, knowledge and experience, which needs to translate into a candidate’s competence, is an essential prerequisite for all nominees.”
INSTITUTE OF DIRECTORS

It is instructive to consider that the importance of “traditional skills, knowledge and experience” implies specialist skills are very much needed from specific board members i.e. they are selected based on the specialist skills they can individually add to the board to address a skills gap identified in the current board. This is different to senior executive roles which require more generalist skills, including the ability to drive delivery through others. But, being a technician is not enough, says a survey respondent: “You need to build your skills and experience, either alongside a development NED role or before you become a NED. Being a specialist is not enough – you need to understand business and environment context and have the experience to recognise issues and the ability to resolve or advise on them.”

Board cultural fit is an important element in selecting candidates, implying “either the ability to work constructively towards a common goal is an important attribute for a candidate, or that the status quo of the board needs to be maintained with as little disruption as possible” says the IoD. “Where an effective board culture is prevalent, interpersonal skills (exhibited by emotional maturity, personality, attitude and communication skills) will be assessed alongside the intellectual abilities of candidates (exhibited by critical thinking, and the demonstration of skills, knowledge and experience).”

As for anyone attempting something new, board experience presents a ‘catch 22’ scenario. The IoD advises that the best opportunity for members to obtain experience is to volunteer on the boards of non-profit organisations in order to build a profile, warning though of the “need to ensure that they are just as diligent in their unremunerated roles as they would be for their remunerated roles”.

Active participation refers both to the attendance of board meetings and being prepared to contribute constructively, including reading board packs, peripheral reading on the topics, and active contribution while matters are being discussed. “NEDs must also exhibit sufficient courage to raise highly contentious issues and participate in difficult debates that seek the best outcome for the company and stakeholders,” says the IoD.

The IoD also highlights that applying for a NED post should be for the right reasons i.e. high commitment to fulfilling a governance leadership role that is crucial for the board’s successful functioning, rather than primarily seeking remuneration and/or prestige. It is “a leadership position that should not be taken lightly”. 

The IoD summarises the general criteria being sought for board membership:

• critical independent thinkers
• intellectually agile, well informed and value-adding/value-creating individuals
• sound pre-existing skills and knowledge
• courageous challengers willing to voice their opinions constructively
• strong morals and ethics
• board cultural ‘fit’ that supports an effective board but not ‘yes’ men/women
• not overly aggressive or defensive, but effective leaders and communicators
• no conflict of interest
• supportive of a culture of diversity and inclusivity
• the ability to work constructively in the best interest of the company and to address legitimate stakeholder concerns

Preparing your application, and preparing for interviews
As is standard for many role applications, candidates are rarely informed of the reasons they didn’t make the shortlist. Hence, says the IoD, the onus is on the individual to look into each category of criteria within the screening process and ensure he/she meets the listed criteria before applying. 

When preparing your application, the IoD advises concisely emphasising your skills and expertise pertinent for the needs of the specific company and board role, showcasing your experience at board level (instead of in managerial or C-suite roles), and pinpointing in your cover letter how you can add value and how you meet their criteria. It also advises being aware of your social media activity so that it exhibits what you would like to be known for publicly and privately. “Your general media presence may be used to assess your reputation and standing in society, which in turn will affect the values and reputation of the company appointing you.”

For the interview itself, know who will be on the panel and research their profiles/portfolios. Also research the company and understand what is material to them, and industry and company-specific challenges. Think about your own experience and how it can help them to address the challenges.

Approach the interview not as a job interview with a potential boss, but as a discussion among professionals and potential peers i.e. fellow future board members. Hence, consider yourself an equal member and reflect your confidence and ability to get along with them accordingly.

Prepare for the ‘tell us about yourself’ opening question, focusing on your practical experience in the company’s sector or the value you can add (based on your company and industry research). “...Find a pertinent angle that tells the company about you, but is focused on your ability to add value to them specifically. Share insights and ideas that will highlight your ability to fulfil the leadership role.”

“Communication, interpersonal skills and attitude are key attributes that are inadvertently revealed during the interview, and the interview panel will be considering these aspects as part of [board fit]”. Hence, be prepared to admit where you don’t know, and ask a few thought-provoking questions key to the company’s strategy or performance, or that came up in your research. 

Expect multiple rounds of interviews, especially if the chair of the nomination committee and/or the board is not part of the initial panel – they may require separate interview sessions.

Considering an offer, and adding value once on board
If you are offered a board role, consider the offer carefully to make sure that the company is the right fit for you too, including your reputation – this includes doing your own due diligence. You’re likely to begin this process when considering whether to apply, and delving into more detail as the process continues to interview and then offer. See our past article Non-Executive Director roles – questions to ask for more detail on things to explore when considering a specific role. Part of this is understanding your accountabilities and responsibilities to the company, as well as your personal liability and risk posed by accepting the position.

Consider too whether the company provides directors’ liability insurance, and where it is your responsibility to arrange, be aware of the consequences of the unavailability of insurance before accepting board positions, especially given the risk you bear. Some companies arrange the insurance as a way to retain strong NEDs.

Once you’re appointed, you will be expected to use your experience, knowledge and skills immediately in order to be a fully-functioning board member. The company will likely organise formal and structured induction training, including one or more of in-person training, an induction manual, site/operational visits and/or input from existing board members and the executive committee. The orientation will cover aspects like company governance, strategy, culture, stakeholder engagement, finances, sustainability, sales, operations, management etc. Ensure that you follow through with the entire induction process and support its refinement for future NEDs.

You will also need to understand the corporate governance requirements of the regions the company operates in, the legislative requirements, stock exchange listing requirements and other external acts and codes, as well as the company’s memorandum/articles, board charter, subcommittee terms of reference, policies etc. The company may provide regular briefings on regulatory and corporate governance developments, risks and changes to the external environment to all board members too.

You should keep your own skills and knowledge updated (i.e. ongoing professional development), and learn as much as possible about the company and its industry. Prepare extensively for the board meetings, think critically and contribute constructively at the board discussions. If you can’t attend, ensure that you send written contributions to the chair or secretariat in advance of the meeting – you  are still liable for decisions taken in your absence. The IoD also advises: remain independent, act with integrity and ethics, be courageous, avoid groupthink, and ask as many questions as you feel necessary. It’s also important to remember that your role is non-executive i.e. “do not get involved or interfere in the day-to-day management of the company”. 

Expect that your performance as a NED will be evaluated, as this helps ensure that the board is balanced in terms of skills and knowledge as well as in individual contribution i.e. oversight by the board is constructive.

The IoD notes that mentorship at board level is not prevalent, adding that the reasons are unknown. Perhaps NEDs see themselves as very senior and independent, and don’t seek input; perhaps suitable mentors are rare; perhaps intra-board mentorship could hinder robust debate when opinions differ; perhaps inter-board mentorship poses a confidentiality challenge... Nevertheless, the IoD highly recommends mentorship since it provides “valuable support, advice and insight into complex problems. However, careful thought needs to be given to the nature of the relationship and individual responsibilities within the [specific] context”.