In the 21st century, competition has never been fiercer, and business is constantly changing. The key to success and longevity is adapting to your industry’s trends, and not just following them. This is what makes modern businesses so successful.

One of the best ways to keep your company up to date is by forming a board of directors. Even though it may seem like a formality and an easy task, when you’ve never done it before, the task seems daunting. However, with a little bit of knowledge and training, you can have a successful board of directors in no time.

In this article, we will get started with the board of directors definition, the importance of having a board, and the steps to forming a successful one.

What is a Board of Directors?

A board of directors, also known as a “board” for short, is a formal group that acts on behalf of the company and its stakeholders. It’s responsible for approving management decisions, controlling the methods and practices of the organization, and overseeing shareholder interests.

In many countries, public companies must have a board of directors. However, in exchange for a level of oversight, directors serve for a limited period of time. A group of investors and executives are chosen to sit on the board, and the responsibilities are clearly outlined along with their rights and privileges (CA).

In most setups, the board of directors encompasses 9 members. While some huge corporations may have as many as 31 members, most smaller companies have 3 members. The number of members you need is based on your company’s needs and the size of the company. The key thing to note is that the number must be odd, to ensure that there are no ties.

Why is it Important to Form a Board of Directors?

The rise of technology has made the role of a board of directors more vital than ever. In the 19th century, the board was an advisory body to the person who held the title of CEO and largely consisted of anonymous members.

However, with the rise of the Internet and social networking sites, people have become more involved in the lives of their companies. This has created a stronger sense of responsibility when it comes to stakeholder engagement and action.

In addition to that, with the advent of new technology and systems, the role of a board has changed. As a company grows, there are many more people who need to be involved in making decisions. That’s where having a board of directors comes into play.

The main purpose of a board is to provide oversight so that the CEO and other executives know what’s going on, and what needs to be done in order to be successful. It’s easy to ignore your shareholders or get caught up in a single-minded approach, and the board helps you to remember that you aren’t alone.

With a board, the members are able to be a part of the decision-making process. They can help to identify challenges, opportunities, and threats to the company. Not only will they provide a fresh point of view, but they’ll often offer solutions that have worked for them in the past as well.

Process of Organizing a Board of Directors

Although there are no strict rules when it comes to forming a board, there are certain steps that can make it more effective. In this section, we will discuss the steps you should follow in order to have a successful board.

1. Define the Purpose and Scope

Before you start looking for potential members, you will need to define the purpose and scope of your board. You should determine why you need to form a board, what sort of skills and strengths you are looking for in your board members and the general scope of their responsibilities.

A good place to start is by thinking about the benefits that you want your board to bring. It’s important to think about what you’ll gain from having members, and how those benefits will affect your company.

This process will also determine the number of members that you need on your board. For a startup, you may only need 3 people, but for larger companies, it’s better to have more. You can always add members later on if necessary.

2. Do Some Research

Before you start looking for potential members, you should do some research on those individuals. You should know a little bit about their backgrounds and how they might be an asset to your company.

In the digital era, it’s a lot easier to research board members than ever before. You can read up on their backgrounds, browse through their social media profiles, and even check out their LinkedIn profiles.

However, you don’t want to get caught up in shallow facts, and the key to this sort of research is to be able to see the bigger picture. You should focus on their past accomplishments and experiences, as well as what they will bring to your organization.

3. Analyze and Plan

One of the most effective ways to make sure that your board is successful is to plan out their tasks and responsibilities. A good plan will ensure that everyone has a clear set of goals, and their roles are defined. The plan should also include a schedule to work from, the areas that need to be covered, and the skills and strengths of each person.

This is a crucial step as it will help you to see if your board has the right types of skills and experience that you need at this point in time.

4. Find Members

Once you have a clear idea of what you want for your board members, you should begin the search for candidates. If you need to expand your board in the future, it’s a good idea to consider who might be included in a future expansion. If there are any weak spots that need to be strengthened, you should start searching for new members now.

You can use a number of different methods to put out your search, including:

• Word of Mouth

One of the most effective ways to find board members is by talking to people and asking them if they know anyone who might fit the bill. You can reach out to friends, family members, former coworkers, and anyone else who might have an idea of who you’re looking for. You should try your best to keep it professional, as you will want these board members on board for the long haul.

• Social Media

Of course, the easiest way to find potential board members is through social media. Online platforms such as LinkedIn allow you to network with other professionals, make business connections, and even find potential investors. This is the fastest and easiest way to find the people that you need.

• Resume Database

Undoubtedly the most traditional way of finding board members is simply by looking through a resume database. The database will likely consist of applicants who are looking for more opportunities in corporations just as you are.

Although you can’t guarantee that the people in the database will be a good fit, they should at least be qualified candidates. You will also be able to filter your results based on location, prior experience, and even board standards so that you can find people who are a good fit for your organization.

5. Conduct an Interview

Once you have your candidate shortlisted, it’s time to start interviewing them. The first interview should be a general, informal meeting in which you can get to know each other.

In your second interview, you can talk about the various roles that the board member will play. You should discuss the written plan of how they will fulfill their roles, and how their past experiences can benefit the company.

The third interview should be a final decision on whether you hire them or not. You should take this interview seriously, as it’s your last chance to make up your mind. You should ask them about their past experiences, their goals, and any other relevant information that’ll help you make a decision.

6. Submit Your Board

After the interview, you will have to submit your board candidates to the company’s CEO or business manager for approval. It’s important to note that the board will only be formed once it has been approved by the board director.

You may be wondering what the process for approval is, but there is no secret formula. However, a good rule of thumb is to keep it simple. You should discuss the reasons why you want this person on the board, and how they will benefit the company. You should also ensure that they have a good knowledge of your company and the industry.

Final Thoughts

If you adhere to the steps outlined above, you will be able to find the right board members for your organization. However, it’s important to note that choosing board members is only half of the battle. The next step is to ensure that the board members stay on task and aren’t taking any shortcuts.

Looking for your next board member? You can browse our pool of over 15,000 vetted Non Executive Directors

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Female Executive of the Month – Anne – CEO/NED – France

Global Executive Officer and high quality Non Executive Director with strategy & marketing background and strong innovative BtoB Technology, Sales focus. Dedicated to the convergence of IT (Cybersecurity, IoT, Cloud) and Telecom markets. Wide knowledge of BtoB Go-to-market strategies – SMB to Multinational accounts, covering direct and indirect channels. Watch her video

It should be clearly noted that in terms of the Companies Act, all Directors, Executive and Non-Executive Directors have a statutory duty to promote the success of the Company for the benefit of its members as a whole.

CHARACTERISTICS OF AN EFFECTIVE BOARD OF DIRECTORS WISHING TO DO AN IPO

• Well-functioning Boards of Directors are teams led by the Chairman.
• The Board of a public Company must be carefully selected and managed, taking into account group dynamics and the needs of the business.
• Succession planning is very important and a clear policy needs to be documented.
• A well refined Corporate strategy is most likely to be developed by a Board of Directors and delivered by an executive team, and encouraged by the Chairman, to work together for the benefit of all stakeholders.

CHAIRMAN ROLE

• The role of the Chairman has become much higher in profile and the expectations have increased as quite rightly, shareholders now expect an engaged, energetic, charismatic and involved Chairman who does more than simply manage the Corporate Governance process.
• The success of a Chairmanship undoubtedly hinges on the relationship the Chairman has with the CEO, a relationship which should be centered on honesty, trust and transparency. The success of the relationship is based on mutual understanding, by both parties of the distinction between their two roles.
• Effective Chairmen must have a good knowledge of the business to provide a constructive level of challenge to the CEO.
• Chairmen need to comprehend that they are not there to run the business. Their role is to support and guide. To ensure that the Business is well run but not to run the business.
• What ultimately defines a good Chairman is the ability to run an effective Board and to manage relationships with both shareholders and stakeholders.

CEO ROLE

• The role of the CEO is to run the day to day business of the Company.
• To communicate with the Chairman and the Board of Directors.
• To gain the confidence of the Board.
• To be responsible for ensuring that the Business Plan and Vision for the Company is achieved and that the business is well managed.

ARTICULATING STRATEGY OF THE COMPANY

• Each Director should be capable of articulating internally.
• The Company strategy and the manner in which it will be delivered.
• How the Corporate Governance structure facilitates decision making.
• Why the structure is appropriate for the Company.

BOARD EVALUATIONS

• The Chairman should work to maximise the effectiveness of each Board member for the benefit of the Company as a whole.
• Open and honest Board evaluation is an opportunity for the Board of Directors to improve its performance.

AN EFFECTIVE BOARD INFORMS AND ENGAGES WITH SHAREHOLDERS

• The Chairman must ensure that the Company has in place, effective lines of communications with all shareholders, institutional and individual.
• Communication must be dynamic, encouraging both discussion and feed back.

EFFECTIVE BOARDS HAS A BALANCE OF SKILLS

• The composition of the Board of Directors should demonstrate to its shareholders that it has the right mix of skills and experiences to deliver the strategy of the Company, for the benefit of the shareholders as a whole.

DIRECTORS INDEPENDENCE

• It may not be possible for SMEs to meet all the independence criteria.
• A Company should have at least two independent Non-Executive Directors and in a small Company, the Chairman may count as one of the independent Directors, provided he/she was independent at the time of his/her appointment.

INDEPENDENT AND MAJOR SHAREHOLDERS

• Directors who are or connected with a major shareholder is an issue of significant concern. Therefore, Boards including Directors associated with major shareholders should clearly explain to shareholders the reasons for them sitting on the Board.

COMPOSITION OF THE BOARD

A balanced Board of Directors of a listed Company would consist of:

• A Non-Executive Chairman
• Non-Executive Directors – usually two (one of whom may be the Chairman)
• Executive Directors
• Independent NEDs are important as they provide the appropriate oversight to deliver the strategy of the Company for the benefit of shareholders as a whole. Independence can be defined as independence of character and judgement, and being able to demonstrate this to shareholders in an objective manner.

The qualities required in my opinion:

• Good interpersonal skills
• Sound judgement
• Ability to influence
• Integrity
• The independence and conviction to say things that need saying when necessary

The NEDs usually chair and sit on the following committees

• Audit Committee
• Risk Committee
• Remuneration Committee
• Nominations Committee

CULTURE

The FRC recently came out with a report which looked at the increasing importance which Corporate culture plays in delivering long term business and economic success. The FRC believes that Company Boards:

• Should be connecting their purpose and strategy to culture
• Aligning values and incentives which support and encourage positive behaviours consistent with the Company’s purpose, values, strategy and business model
• Assessing, measuring and reporting on Company culture in annual financial statements.

Last Updated: March 04, 2026

The role of the Chairman has become much higher in profile than ever before. Stakeholders now expect an engaged, energetic, and involved Chairman who does far more than simply manage the corporate governance process. According to PwC’s 2025 Annual Corporate Directors Survey, 55% of directors believe at least one board colleague should be replaced — the highest proportion in the survey’s history — underscoring the growing demand for effective board leadership at the top.

The success of a Chairmanship undoubtedly hinges on the relationship the Chairman has with the chief executive, a relationship that should be centered on honesty, trust, and transparency. The success of this relationship is based on mutual understanding by both parties of the distinction between their two roles — the Chairman guides and oversees; the CEO executes and manages.

Good and effective Chairmen must have an extremely thorough knowledge of the business they are chairing. They must know enough to ask the right questions and must provide a constructive level of challenge to the chief executive. One of the main faults of chairmen deemed to be ineffective is their failure to comprehend that they are not there to run the business — their role is instead to support and guide. In simple terms, the job of the chairman is to ensure that the business is well run, not to run the business themselves.

There is, however, a fine line to walk between being too involved and being too remote. This means Chairmen should devote the appropriate level of time to their roles, which means visiting operations, talking with staff and customers, as well as investors and other key stakeholders.

The best Chairman is able to develop empathy with the business and engage with its people and issues. But there is no “one-size-fits-all” prescription for an effective Chairman. The right level of engagement will vary depending on the company’s stage in the business cycle, competitive environment, the experience of the chief executive, and — increasingly in 2025 — the complexity of challenges like digital transformation, cybersecurity risk, and evolving regulatory expectations.

What ultimately defines a good Chairman is the ability to run an effective board and to manage relationships with both shareholders and stakeholders.

10 Essential Qualities of a Good Chairman in 2026

• Charismatic personality
• Good communicator and listener
• Clear sense of direction
• Strategic view — The Big Picture
• Allows chief executives to get on with their job
• Good at governance
• Broad experience
• Business acumen
• Able to gain shareholders’ confidence
• Able to get to the key issues quickly

1. Charismatic Personality

A good chairman is someone who can easily inspire confidence and motivate people. They should have the ability to energize a boardroom and make directors, executives, and stakeholders believe in the company’s vision. This charisma extends beyond the board — a strong chairman can rally employees, reassure investors during turbulent times, and represent the company with credibility in public forums and investor meetings.

2. Good Communicator and Listener

A good chairman is first and foremost a good communicator — and an even better listener. They need to articulate the board’s vision and strategic priorities clearly, and they need to genuinely listen to the ideas, concerns, and feedback of directors, the CEO, management, and shareholders. Effective chairmen foster an environment where constructive dissent is welcomed and diverse viewpoints are heard before critical decisions are made. They should be open to challenge and willing to adapt their position based on the strength of the argument.

3. Clear Sense of Direction

A good chairman needs a clear sense of where the company should be heading. They should be able to set clear board priorities and governance objectives, ensuring that every board meeting is purposeful and focused on the issues that matter most. This means being disciplined about agendas, ensuring time is allocated to strategic discussion rather than just compliance updates, and keeping both the board and management aligned on the same long-term trajectory.

4. Strategic View — The Big Picture

A good chairman should be able to see the big picture — understanding how the company’s strategy fits within broader market trends, competitive dynamics, and macroeconomic forces. They should think strategically about the organization’s future, including emerging opportunities and threats, rather than getting drawn into operational details. In today’s business environment, this means understanding the impact of trends like AI adoption, geopolitical shifts, supply chain disruption, and changing consumer behavior on the company’s long-term position.

5. Allows Chief Executives to Get On With Their Job

A good chairman should not try to micro-manage the chief executive. They should allow the CEO to run the company and only step in when necessary — providing support, guidance, and constructive challenge, but not interfering with day-to-day operations. The chairman-CEO relationship is one of the most critical dynamics in any organization. CEO turnover remained elevated in 2025, and a notable number of departures were prompted by activist pressure. The best chairmen navigate this relationship by being a trusted sounding board for the CEO while holding them accountable for delivering results.

6. Good at Governance

A good chairman needs to be able to effectively govern the company. They should make decisions that are in the best interest of the company and its shareholders, be aware of relevant laws and regulations, and ensure full compliance. In 2025, governance expectations have expanded significantly. Boards must now oversee cybersecurity risk as a core governance priority — the SEC requires public companies to disclose material cybersecurity incidents within four business days and include cybersecurity governance details in annual reports. Effective chairmen also ensure robust board evaluation processes, successor planning, and alignment with evolving ESG frameworks and disclosure requirements.

7. Broad Experience

A good chairman should have a broad range of experience spanning business, finance, governance, and ideally, the specific industry the company operates in. They should be familiar with the different aspects of running a company — from financial reporting and risk management to talent strategy and digital transformation. Increasingly, boards also value chairmen with international experience, as global markets, cross-border regulations, and geopolitical factors play an ever-larger role in corporate strategy.

8. Business Acumen

A good chairman needs a strong understanding of business fundamentals. They should know how to evaluate growth opportunities, assess competitive positioning, and drive sustainable long-term growth. They should be able to spot risks and opportunities that others might miss, and make decisions that create lasting value for the company. This also means understanding the financial implications of strategic decisions and being able to constructively challenge management’s assumptions with data-driven reasoning.

9. Able to Gain Shareholders’ Confidence

A good chairman needs to be able to earn and maintain the confidence of shareholders. They should communicate the board’s vision, strategy, and governance practices transparently and answer difficult questions credibly. Regular, proactive engagement with major investors is essential — not just during AGMs, but through ongoing dialogue that demonstrates the board’s responsiveness to investor perspectives. As regulatory shifts continue to reshape the relationship between companies and shareholders, the chairman plays a critical role in navigating proxy season, responding to activist campaigns, and maintaining investor trust.

10. Able to Get to the Key Issues Quickly

A good chairman needs to quickly identify the most critical issues facing the company. They should be able to sift through complex information, cut through noise, and focus the board’s attention on the matters that require immediate action or strategic deliberation. This includes knowing when to convene the board on urgent matters — whether it’s a cybersecurity incident, an acquisition opportunity, a CEO succession issue, or a sudden market shift — and ensuring the board has the right information to make timely, well-informed decisions.

How Much Does a Chairman of the Board Earn?

Chairman compensation varies enormously depending on company size, whether the role is executive or non-executive, and whether the company is public or private. According to Spencer Stuart’s 2024 Director Compensation Snapshot, the average total compensation for S&P 500 independent directors is $327,092 — with independent board chairs receiving an additional premium ranging from $25,000 to $500,000 on top of that. Retainer levels for independent chairs at large-cap companies sit around $175,000, while small-cap independent chairs earn approximately $82,500.

For executive chairmen — those who also hold an active management role — compensation is significantly higher. Salary.com reports an average chairman salary of around $187,000, while Glassdoor puts it at approximately $269,000, with the 75th percentile reaching $366,000. Comparably reports an average of nearly $297,000. Private company boards compensate much more modestly — the median total compensation for a private company director was $40,000 in 2024, with the median chair premium at just $20,500.

The Role of the Chairman in an Initial Public Offering

The appointment of the right Chairman is key for a business wishing to IPO. The Chairman greatly enhances the prospects of a successful IPO by building an effective board and calling on their years of experience to ensure the story a company sells to the market is both compelling and credible. Investors and underwriters look closely at board composition and governance quality when evaluating IPO readiness — a strong, experienced chairman signals that the company takes governance seriously.

Further, it is the chairman’s task to set the tone at the top: to articulate what they want the organization to be, establish robust governance frameworks, ensure compliance readiness for public company reporting requirements, and make sure the business has the right corporate reputation in its community and among potential investors.

Modern Challenges Every Chairman Must Navigate in 2026

Beyond the foundational qualities listed above, today’s chairmen face a governance landscape that is more complex and demanding than ever. Key challenges include:

• Cybersecurity oversight: The SEC now requires public companies to disclose material cybersecurity incidents and report on board-level cybersecurity governance in annual reports. Chairmen must ensure the board receives regular briefings on cyber risk and that clear lines of accountability exist between the CISO, management, and the board.
• AI governance: As artificial intelligence reshapes industries, boards are under increasing pressure to provide oversight of AI strategy, responsible deployment, and associated risks. Effective chairmen ensure the board has sufficient technology literacy to ask the right questions.
• Board diversity and refreshment: Stakeholders and regulators expect boards to reflect diverse perspectives. Chairmen must lead ongoing board evaluation and refreshment to ensure the right mix of skills, experience, and backgrounds.
• ESG and sustainability: While political dynamics around ESG have shifted, particularly in the U.S., the underlying expectations from institutional investors and global regulators remain strong. Chairmen must help the board navigate these complexities thoughtfully.
• CEO succession planning: CEO turnover remained elevated in 2025, with a notable number of departures driven by activist investors. Forward-thinking chairmen maintain robust succession plans well before they’re needed.

Qualities of a Good Chairman: Conclusion

In conclusion, a chairman has done their job when the “vision for the business,” as set out and presented in the strategic plan to shareholders and stakeholders, has been achieved — and when the governance framework that enabled that achievement is robust, transparent, and fit for purpose.

Finding the right chairman is one of the most important decisions any organization can make. Whether you’re preparing for an IPO, refreshing your board, or looking for a chairman who can navigate today’s complex governance challenges, CEO Worldwide can help. We specialize in international executive recruitment, placing top board-level and C-suite talent across 183 countries in as little as 7 to 10 days. Contact us to learn more about our C-suite recruitment services.

What is the definition of a Non-Executive Director (“NED”)?

Michael Grade once famously said: “Non-Executive Directors are like bidets – not sure what they are there for, but they add a bit of class!” This is far from the truth.

NEDs are working harder than ever. The risk/reward is not what it should be. The Walker Report has made the job more onerous.

Many boards are not tolerant enough of challenge and if someone asks too many questions, they are branded as part of the “awkward squad”.

Lord Walker in a recent speech said: “The ability of NEDs to stand up to executive management is more important than the qualifications those directors hold.”

While there has been a whole lot of discussion about the need for NEDs with relevant experience, that knowledge is little more than useless if it is not accompanied by a willingness to challenge the executives.

With regard to the more practical aspects of being a NED of a SME company,

MY DEFINITION OF A GOOD NED IS ONE WHO ENSURES THAT THE BUSINESS IS WELL RUN BUT DOES NOT RUN THE BUSINESS

Qualities which are needed:

• Good interpersonal skills and ability to manage conflict
• Sound judgement
• The ability to influence through clear communication
• Integrity
• The conviction to say things that need saying and, as a last resort, vote with your feet
• To be commercially aware

Other key points that make effective Non-Executive Directors:

• NEDs should look at the company as a whole – “take a helicopter view”.
• NEDs should not get entangled in the day-to-day operations.
• CHALLENGE THE MD AND EXECUTIVE BOARD: By asking apparently simple questions about the business, the NED can greatly help an executive team to re-focus on the important rather than the urgent. Also to challenge commercial ideas such as “We have always done it that way”.
• PROVIDE KNOWLEDGE, INSIGHT AND EXPERIENCE: General business wisdom and experience gained from a variety of environments has huge value as business people often learn best from the experience of others.
• RAISING GOVERNANCE: A good NED should help to raise the standards of corporate governance within a company. This helps to ensure that executives understand their obligations in this respect and thus comply with the Code.
• ADVISE ON STRATEGY: A business without a strategy is a business without a sense of direction or purpose. NEDs can assist the executive team in articulating the strategy. Therefore, NEDs must have good interpersonal skills and sound judgement.
• CHALLENGE BUSINESS PLANS: Executives can often produce business plans where their goals are comfortable rather than stretching. NEDS can push, interrogate and raise the performance bar. They can also challenge where they believe ambitions are simply unrealistic. They provide a commercial reality check.
• MENTOR: One of the most important roles of a NED, especially for SMEs, is to act as a mentor to the executive board and coaching of directors in governance, people management etc.
• ACTING AS A SOUNDING BOARD: NEDs have an invaluable role to play when a company is considering decisions such as acquisitions and disposals of businesses.

The above roles do, of course, have to be read in the context of any NED’s statutory duty to promote the success of the company for the benefit of its members as a whole under the Companies Act 2006 – which he shares with his co-directors.

In addition, however, the NED can act as the impartial “honest broker”, helping to make well thought out decisions where the heart wants to rule the head in some cases!

The Walker Report noted that while a complete overhaul of the contents of the Combined Code was not required, there remained parts which needed further review. Accordingly, the Market’s view could be seen to be that the flexible “soft law” approach remained the most appropriate way of raising standards of corporate governance.

The UK Corporate Governance key changes to improve effectiveness are:

• The entire board of FTSE 350 companies should stand for annual re-election.
• There should be a balance of skills, experience and knowledge on the board.
• The chairman should hold regular development reviews with each director and there should be an external evaluation of the board of FTSE 350 companies at least every 3 years. (I am sure that this will apply to AIM and lower FTSE companies in the near future).
• The importance of the chairman and the NEDs in providing leadership and constructive debate respectively is brought to the forefront of the Code.

It is necessary to ensure that the board has a clear line of sight.

If the directors cannot see what is happening inside the business, and are thus not receiving the necessary information, they will not know what questions to ask.

Indeed, if the risk management processes are not organised in a clear and methodical way, then a small number of part-time executives do not stand much chance of over-seeing them.

These two variables – boardroom behaviour and connectedness to the organisation – are necessarily inter-dependent. Therefore, there will be no real challenge for the board room unless the company makes it possible, which means that the management needs to want it to happen.

I believe that this represents the vital points which have come out of the Walker Report in that executive management and the way they conduct themselves is central to how both the Code is applied and companies conduct themselves.

Further, discussion should be tough, testing and stretching, but conducted in an adult, grown-up way.

Challenge needs to be focused and informed, not aggressive or hostile.

The whole board needs to come together or it risks dysfunctionality. Having prima donnas is not helpful or constructive.

In these difficult economic times and markets one reads of more fraudulent actions by companies and their executives and more hiding of price-sensitive information etc.

For this reason, Non Executive Directors should ensure more transparency with the executives, timely financial information and ensuring that internal control procedures are continually being reviewed. Today, NEDs in the board room face an increasingly tough and challenging job. New legislation under the Companies Act has ratcheted up the threat of legal action. Activist shareholders are all too ready to put NEDs under fire. This has made the role of the NED even more crucial and onerous.

Also, the NED sits around the table on an equal footing and with the same legal obligations as those who run the company on a full-time basis.

Therefore, in these difficult economic times the focus of the Non-Executive Directors should be on the various risks facing the business.

There should be an emphasis on:

• internal controls
• cash management/receivables
• gearing of balance sheet
• ensuring bank covenants are not breached
• keeping customs and protecting markets

Non-financial risks should also be reviewed, e.g:

• retaining key personnel
• litigation
• environmental
• Health and Safety etc.

The NEDs should ensure that the executive team fully understands the issues of the day and that they are complying with the board’s decision at all times.

As they say, you cannot beat experience and grey hair – as well as having the “scars and the T-shirt”. Hopefully, however, one can seek to impart one’s experience of difficult times to the management teams.

You might know of Lord Digby Jones, who was once head of the CBI. He was a NED of a company called I-Soft and was criticised years ago in the Press. He said “we cannot be seen as board room policemen. Non Executive Directors can add value in so many ways but investigative policemen they are not”.

In my opinion there should be a balance of being a policeman – ensuring that there is good corporate governance and adding commercial value to the enterprise.

In these difficult markets and economic times, I would like to share with you some of the concerns which keep me, as a NED, awake at night:

It is impossible for a NED to know everything about a company in an average of 26.5 days per year. The issue here therefore is how does one accelerate both industry and company knowledge?

• As chairman of the audit committee, the depth and detail of the audit committee agenda and getting to grips with risk assessment is particularly challenging.
• Geographic diversity and cultural differences in many companies gives one cause for concern.
• Technology and security risks in today’s world are a worry.
• Reputation risk – given that Non-Executive Directors have to rely on others in the company and its control mechanisms, to keep matters under review, the fear of “what is not known” is an issue and a worry.
• Legal proceedings against directors can result in reputational damage that can, in many cases, be irreparable.

I always try to have a legal representative at board level to advise all directors on issues as they arise. There are, therefore, many challenges in being a NED, especially in an economic downturn.

Although NEDS should not be policemen, they need to be more vigilant and clearly understand their fiduciary duties and the requirement to clearly identify major risks to the company on whose board they serve.

The guiding principles for me with regard to corporate governance and the role of the NED for companies wishing to carry out an IPO both local and international companies are therefore:

• To ensure the ongoing implementation of corporate governance policies which have been put in place at the IPO.
• Non-Executive Directors should not be removed or replaced other than in exceptional circumstances within 12 months of an IPO.
• Any changes at any time to the NEDs should be approved by the NOMAD.
• The concept of the role and the relationship between the NED and company is one which is of great importance to me, the objective being to build and open a transparent relationship with the executive directors.
• Communication, therefore, plays a major role in attempting to achieve this objective, which is made more difficult due to cultural and language differences in dealing with international companies.

It is part of the learning process for executive directors of companies to understand their obligations and to build a sound relationship with their NEDs. Non-Executive Directors can also be of help with general business advice, mentoring and representing the company in the City. What I find works for me, for example, is that I speak with my companies at least weekly, get copied in on all relevant email correspondence, receive monthly management accounts, have monthly board meetings and ensure that accurate board minutes are produced when appropriate.

It is not enough to get company directors to sign that they understand their ongoing obligations.

I believe that the more one communicates, the better the chance one has to build a relationship of trust and transparency with the executive directors.

The Nomads should also play a major part in the education of the companies they are advising and bringing to the market.

I believe, therefore, that the guiding principles regarding the relationship of the company with their Non-Executive Directors are as follows:

• NEDs must be invited to attend all board meetings well in advance of the meeting and be provided with board papers.
• the executive directors of the company must be willing to engage in full dialogue with the NEDs and respond to their requests for information fully.
• prior to an IPO the entire board should attend a meeting with the company’s NOMAD and legal advisor to review the board’s overall responsibilities and duties include corporate governance.
• And, finally, the best advice I can give from my experience to overseas and local companies seeking to carry out an IPO is:
  • ensure that your company continues to be well-managed during the admission process as it will take up significant management resource;
  • meet your first year forecast – do not over-promise and under-deliver – failure to do so is likely to lead to a rapid deterioration in the company’s share price and inability to raise further equity in the markets, as well as impacting on the credibility of the company’s management with investors; and
  • appoint your NEDs as soon as possible in the IPO process in order for them to begin to build a trusting relationship with the executive directors. Please use their experience and expertise for the benefit of the company.

About the author: Frank Lewis has over 25 years of experience in both listed and private companies. He has held a number of board positions as Chairman, Non Executive Director, CEO and Finance Director, both in the UK and abroad with growing mid-market companies. With a background in sophisticated and developing markets, he has the commercial prospective required to assist with growth strategies, acquisitions and flotations.

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