Click the headings below for more information:
- So you want to be a NED?
- What qualities should a good NED should possess?
- Have you got the requisite skills?
Have you got the requisite skills?
In addition to the qualities and abilities already identified, a competent NED should possess the following skills and abilities:
- Be a good listener
- Be capable of offering sound advice, based on experience
- Be articulate and able to defend opinions
- Be a good communicator
- Be receptive to alternative views in debate
- Be able to challenge ideas, strategies and proposals robustly
- Be able to challenge fellow Directors robustly
- Be able to speak out, even when in the minority on a Board
- Be able to behave in a manner that avoids antagonism and threats
- Be constructive and supportive
- Be able to manage conflicts
Interestingly, the Institute of Directors (IoD Factsheet), suggests that all Directors should possess the following attributes, which complement the list shown above:
- Strategic perception
- Decision-making ability
- An ability to analyse and use information
- Communication skills
- An ability to interact with others
- An ability to achieve results
These attributes appear in the IoD publication: Standards for the Board. “Improving the Effectiveness of your Board.”
All of these skills pre-suppose that the NED will be well prepared for all meetings and that he or she will have read all relevant documents, preparatory papers and appropriate materials.
Different skill sets may be required for Executive management, for independent NEDs, for affiliated NEDs and for the person who chairs the Board.
In particular, the Board’s Chairman or Chairwoman, who is increasingly a non-Executive appointment these days, should have appropriate skills to ensure that meetings are run efficiently and to time.
Some argue that it is the prime responsibility of the chairman or chairwoman to run the Board, while the Chief Executive (CEO / Managing Director / MD) runs the company. Different management skills will be required to perform these distinctive functions well, but this interpretation of the role of the Chair does indicate that the Board’s composition (subject to regulatory requirements), performance and agendas are primarily the responsibility of the chairperson, often carried out in conjunction with the Company Secretary.
Those who chair Board Meetings will need a range of skills that are appropriate to such a function. The Institute of Directors, among others, provides useful training for those who are required to chair meetings of the Board or its Committees.
According to the UK Corporate Governance Code (as set down by the Financial Reporting Council primarily for listed companies), the Chairperson is responsible for setting the Board’s agenda, for ensuring that all Directors receive accurate, timely and clear information and that all decisions are properly debated and recorded.
A good Chairperson will meet the NEDs individually and collectively to discuss personal performance and Board effectiveness.
He or she will mediate where there may be differences of opinion on the Board.
Naturally, an ability to work well and closely with the Company Secretary is a desirable skill.
“The Prudential Regulation Authority’s approach to insurance supervision”, published in April 2013, succinctly sets out its expectations of Board members at Section 91:
“The Board should have a mix and balance of skills so that collectively it can understand the breadth of the business. The PRA expects many on an insurer’s Board to have expertise in financial services, though this is not a pre-requisite for all members.
The PRA expects all Board members, either at the outset, or after a set period of time, to develop an understanding of the different areas of the business and the main prudential risks and controls, and so to be able to engage in an informed conversation with the PRA.
The PRA expects more than one independent director to understand major lines of business and risk controls, in order to avoid undue reliance on individuals by the Board as a whole.”
This particular document is a very useful point of reference for all NEDs, along with the PRA’s Supervisory Statement “Strengthening individual accountability in insurance”.
Since the formation of the PRA and FCA an increasing role of NEDs has been the requirement for NEDs to be available to talk to the regulators directly.
Depending on the circumstances, these can be uncomfortable or sensitive conversations. Handled skilfully, however, they can be a source of satisfaction in terms of making a genuine contribution both to the company and to the effectiveness of regulation in the authorised sector.
How NEDs can influence Boards:
Research jointly carried out by WCI Liveryman, Professor Mike Adams, School of Management, University of Bath and Dr. Wei Jiang, Manchester Business School, University of Manchester concludes that it is the outsiders’ (i.e. the NEDs’) financial expertise that has the most significant impact on the financial performance of insurance firms.
In a highly academic article published in the Journal of Banking & Finance (#64, 2016), they pose the question “Do outside directors (i.e. NEDs) influence the financial performance of risk-trading firms?” Their conclusions are based upon evidence drawn from the UK insurance industry between 1999 and 2012.
For those considering becoming an insurance NED this article raises a number of important issues.