Non-execs – pain without the gain?

One of the biggest questions to emerge from the current banking crisis is what were the non executive directors doing while top banking executives were running their companies into the ground. Indeed this has been a question asked after a number of corporate failures in the past 10 years, such as Enron and Worldcom.


Some of the arguments advanced as to why these non execs were so ineffective in preventing what occurred include lack of accountability, insufficient knowledge of the businesses they were directors of, the fact that they were not selected from a wide enough pool of candidates, and the implication that their high levels of remuneration had compromised their independence.

This view on payment levels was expressed forcefully in last Sunday’s Mail on Sunday. And yet, when one takes into account the risks associated with being a director, the time and effort required to do the job in a way that discharges the legal duties of a director as well as satisfies the requirements of external stakeholders, and the knowledge and experience required to carry out the role properly, the question moves towards not whether non-execs are paid too much but are they actually paid enough to ensure that the right calibre of individual undertakes the role.

That is not to say that independence argument does not have merit, because it clearly does, but surely one of the reasons that a non executive is brought on board is for their ability to think and act independently, something that can obviously be established during the selection process. It is also difficult to establish what level of remuneration is excessive, in that £30,000 for some individuals would be a considerable sum whilst for others it would be pocket money.

We at Orchard have always been big fans of non-execs for all companies, and have had our own from the start. Good non-execs add considerable value bringing experience and knowledge to the party as well as providing a vital sanity check for executive directors and managers, and standing up for the interests of outside shareholders. One of the reasons that we have a strong relationship with the Non Executive Directors Association (NEDA) is the desire to promote good corporate governance through a strong non executive presence on company boards.

We all want knowledgeable, experienced, independent, diverse non executive directors in big and small companies who are willing to stand up to and challenge executive managers where necessary. We also expect these non execs to make available the necessary time to undertake their role, and to take full director risk and responsibilities when carrying out their role. We therefore cannot be surprised when they start to demand remuneration that reflects their skills, their time and the risks that they take.