by Real Business - Thursday, 30th August 2007

A good non-executive director is a vital part of any business, providing a fresh, independent and (hopefully) experienced viewpoint for the chief executive. Picking a NED used to be a simple business, until Derek Higgs’ Report muddied the water, laying down rigorous principles on who you should rule out for the post, how much you should pay them, how often you should get rid of incumbents, and what independent really means, to the point that many blue chip bigwigs like Vodafone’s Chris Gent, Dixons’ Stanley Kalms and Liberty International’s Donald Gordon urged CEOs to file the report in the bin. In Gordon’s words: “Higgs is one of those guys whose bullshit baffles brains. The proposed changes will have unintended consequences and prove insidiously self-defeating – with possibly disastrous results.”

Don’t bother reading the actual report (it is available online at the DTI’s site). Instead go straight to the Financial Reporting Council’s site www.asb.org.uk where you’ll find the Combined Code. This only partially incorporated Higgs’ recommendations. Small businesses are urged to have two NEDs, and to ensure than nothing can compromise their independence. So pay them in cash (no fiddly share options), and avoid any former employees or people with a direct interest in the running of the company. But the biggest issue is whether your NED should be permitted to sit on other boards. Higgs said one NEDship should be the maximum. Digby Jones of the CBI says five is OK. Both agree the critical criterion is the amount of time the director will be able to focus on your company.

When you know who you can rule out, there are two routes for recruitment: call a headhunter, or save cash by using an online exchange.

The NEDexchange.co.uk is one of the best exchanges. It is run by Ray Fox, a former company secretary of Dun & Bradstreet. Its USP is that it is free for companies, relying on fees from candidates, and has around ninety candidates at any one time. Fox set up the service for SMEs who resent the sky-high costs of recruitment agencies, and who fail to ensure the candidates are treated as well as their clients. “We must be doing something right,” he says, “as we have a ninety per cent return rate for firms using the service.”

A similar service is www.non-execs.com which is run in conjunction with Ernst & Young. Although only launched a year ago the site is hugely ambitious and has been promoted heavily in the national press. Candidates join the database at a cost of £50 a year, and companies are charged £400 per search. The site also contains useful papers on the subject of non-executive directorships.

ExecutivesontheWeb.com is the biggest database service, with over 100,000 executives listed. It also has the appeal of being endorsed by the CBI and IoD. CBI members get a 50 per cent discount. The cost for posting a vacancy is £500 per month.

If you are looking for a big hitter – the sort of personality who’d shy away from an exchange – it might be time to call the headhunters. GroNed is run by accountants Kingston Smith, and the fee of £5,000 is much less than you’ll pay at major headhunters. Whitehead Mann, Spencer Stuart, Zygos, Highland Partners, Drax, Heidrick & Struggles and Norman Broadbent are headhunters geared towards blue chips rather than small family firms. All insist they can tailor their services to SMEs, but you would expect to pay a finder’s fee equal to the NED’s salary - at a minimum of around £25,000.

If you are concerned that the search for a NED might get out of hand and you could end up with Richard Branson sitting on your board (and paying his annual rate) bear in mind that most NEDs on small firms receive between £5,000 and £15,000. For an interesting analysis see The IT Non-Executives’ Association’s pay survey, at www.itnea.net/remuneration.htm, (or e-mail jane.tozer@virgin.net for the full report).

Another good idea is to make sure when you’ve got your NED signed up, they know what they’re doing in their new role. Send them on a one, two or three day course at the IoD. Courses cost £500 a day. Ernst & Young also have a gamut of initiatives aimed at NEDs, and do everything from qualifications, seminars, books, pamphlets and black tie dinners.

If you want someone already versed in the ins and out of being a NED, contact Lord Razzall, who holds over twenty directorships, the most of any politician. Or you could try and recruit the man himself: when he published his report last year, Derek Higgs held a chairmanship, four NEDs, and two executive directorships – just the sort of experience an SME should be looking for.

FINANCIAL PRS
Derek Higgs British Land
t: 020 7486 4466

Non-Execs.com Neil Sellick
neil.sellick@exec-appointments.com
t: 084 5458 9850

Executivesontheweb.com Justin Finch
jrf@executivesontheweb.com
t: 084 5009 2009

Zygos Duncan Reed
duncan@zygos.com
t: 020 7152 6011

GroNed John West
jwest@kingstonsmith.co.uk
t: 020 7306 5670

IoD courses Will Dawson
will.dawson@iod.com
t: 020 7766 8804

Lord Razzall House of Lords SW1A 0PW

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