Non-executive directors should monitor executive directors
Monitoring executive directors: a guide for carrying out one of the most essential functions of a non-executive director (NED).
If you’re a non-executive director, your independence is everything.
Being a NED means you steer clear of managing the company’s day-to-day activities. This is intentional, designed to protect your outlook from the nitty-gritty, and let you focus on more critical governance matters.
What are those matters? Mainly, they are strategy and the board itself. Your job is to ensure they function correctly, and your chair and CEO will depend on your honest, direct feedback in this area.
So, now you need to set about monitoring executive colleagues. Here’s what you should know before you start:
You’re monitoring executive directors, not evaluating them
As a NED, part of your role is to examine executive colleagues and how they function as a team. This lets you assess the board against company strategy and determine if both work well.
But remember: when doing this, you’re simply monitoring to provide honest feedback; you’re not an inspector with a clipboard and a mark sheet, out to catch colleagues off-guard.
NEDs usually – and should – play an active role in board evaluation, remuneration and succession planning committees, and these are the appropriate places to offer constructive advice. Use them to the maximum.
Watch David W Duffy below, the CEO of the Corporate Governance Institute explain the qualities of a NED.
You’re looking at groups as well as individuals
It’s essential to examine the merits of executive directors individually – whether they’re living up to their potential and aligning with company strategy.
It’s also important to consider the board as a unit.
With your outlook, you should be able to spot elements of a dysfunctional board more than your executive colleagues. These elements can vary significantly. They could be anything from flaws in the decision-making process to spotting conflicts of interest to addressing the structure of board committees.
With your independence, you’ll have a clear picture of this than others. Use it.
You’re assessing people against strategy
More than anything, monitoring executive colleagues comes down to a comparison between their work and the company’s goals. Your job is to maintain a healthy knowledge level on both and use your best judgement when giving feedback.
Ensure you are clear on company strategy, both short-term and long-term. Ensure, also, that you’re clear on each executive director’s role, experience, and what shareholders expect from them.
And lastly, ensure that when you monitor the board’s progress, you compare executives and strategy together and use your expertise to see if they combine for meaningful business growth.
When you report on this to the chair, board committees, or the CEO, be clear on the metrics and parameters your using to measure success or areas for improvement.
You’re here for honesty
Non-executive directors rarely have any personal ties to a company. This makes their advice vital because they are basing it on their experience-fuelled assessment alone.
Remember this during the entirety of your time as a NED.
Over time, it’s natural to build professional relationships with executive colleagues or build a personal attachment to the company’s reputation, but your goal does not change through any of this.
So remember, continue to assess and advise from an impartial, honest perspective. You are one of the most important sources of this information available to your chair, your CEO, and your shareholders.