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Director’s diary: should my board have one or two NEDs?
Director’s Diary: top governance insights designed to get you thinking as part of your corporate governance education – brought to you by CGI’s co-founder David Duffy.
One question I am often asked is whether to appoint one or two NEDs (non-executive directors) to a board. Firstly, this point deserves some context and consideration.
The very act of bringing a NED onto a board is usually a big step for a company because it’s the first time that an “outsider” will be in the room, asking questions that could very well not have been asked before.
It also means that once-private information becomes available to new, more independent directors. Depending on the type of company, this could be a massive environmental shift. This goes especially for private or family companies, which often hold confidentiality at the core of their business operations.
That said, there is almost always a good reason for bringing in a NED. Usually, it’s because a new external chair desires it or because the board recognises that new blood is needed to guide organisational strategy properly.
They will always bring additional skills and experience (such as with mergers and acquisitions), specific industry expertise, or real-world experience improving governance practices. In all of these cases, this is a step that needs to be very carefully considered by all.
From the board’s perspective, the rationale for appointing a NED and agreement on the particular skills and experience required need to be clear. Once that is done, the recruitment process can begin.
However, being the only NED on a board can be a lonely position. In cases like this, it’s common for all other directors to be executives, producing a clear divide. The lone NED may not have a peer group to talk to or compare notes. They may also feel less influential or have less impact than they would if they had a co-NED to work with.
The flip side of the coin is that there may be resistance to bringing on two NEDs at the same time. The board may simply consider it a step too far from the norm; they also might consider it an unnecessary cost for the state that the business is in.
You do need to look at both arguments, but, personally, I think that two NEDs are better than one as they will have more impact in the boardroom, bring complementary skills and be able to support one another.
However, the key thing to remember is that it may take time to get to this point.
