Who would want to be a NED?

February 16, 2022

This was the subject of a webinar held on 9 February produced through the good offices of the London Stock Exchange Group. A panel of experts representing MM&K, search firm First Flight, Women on Boards and Board Excellence, a specialist in Board Evaluation, considered the question in light of findings in MM&K’s survey of Chairs and NEDs, “Life in the Boardroom”.

We keep a finger on the NED pulse through “Life in the Boardroom” which, in its latest iteration, includes responses from 358 directors, representing 885 roles, of which 331 were Chairs. It is unique insofar as, in addition to data on fees and time commitments, the survey report includes insights and comments from NEDs on subjects which are of most interest or concern to them.

A summary of key findings from the Life in the Boardroom 2021/22 report set the ball rolling for the panel to offer their thoughts on the core question and their responses to questions from the moderator and audience members. A review of the webinar can be found here  and a recording is available here.

The remainder of this article summarises some of the key survey findings, which sparked the question: who would want to be a NED?

1. Demographics:

Only 7% of NEDs are under 50, 80% are over 55

It will be interesting to see how this might change as the corporate landscape changes in future with the growth in early-stage, technology-based companies and as the NED role continues to evolve. Experience is a key quality NEDs bring to the boardroom. On the other hand, there is a case for introducing new blood with new ideas to promote change.

2. Board composition and diversity:

• 30% of NEDs are female • But only 8% of Chairs are female • Nearly 80% of survey respondents say their boards have the right level of diversity and skills to take the business forward and a similar number think their boards are fully effective.

These results may raise questions about whether a board with those levels of female representation can be regarded as diverse and fully effective. But there are also important questions about why so few females ascend to become board Chairs, raising questions about corporate culture.

Policies for bringing on talent and management succession planning are important for ensuring there is a pipeline of talent moving through the business to provide future generations of executive and non-executive directors.

3. Appointment process:

• Nearly half of NEDs and Chairs are appointed by personal contact • Appointments through search firms are down (3%) but nearly three-quarters were given a formal interview. • Shareholders are not consulted in nearly 30% of cases.

4. Time commitments and fees:

• 60% say the NED role has become more demanding • Less than 10% receive additional fees as compensation • Slightly less than half think fees have not kept pace with increased demand • Most NEDs receive an annual fee paid in cash • Averaged across all company sizes, fees for male NEDs are 27% higher at the median than fees for female NEDs.

Many respondents attribute greater demands to increased regulation and time spent in Board meetings, which leaves less time for their other activities.

Comments received from survey participants indicate a concern about the balance of risk and reward for NEDs as their roles evolve. A potential risk for business is that if developing talent is deterred from taking up NED appointments, the quality of boards may start to decline.

5. Board development/evaluation

• Over half report their companies evaluate Chair and NED performance annually • Nearly two-thirds say there is a robust board evaluation process but it is carried out externally in only 14% of cases • More than one-third report there is no evaluation process and no induction or continuing training for NEDs.

The level of annual evaluations is encouraging but there is an implication in these findings that about half of Boards mark their own homework as regards board evaluation – a possible indicating that a cultural shift is needed to attract new talent, bring about change, where that is necessary and maintain high levels of board quality.

6. Covid

• COVID has brought about a greater focus on ESG, according to over half of respondents • Shareholder pressure to address ESG is a factor and 60% said their companies have developed ESG policies • Virtual meetings (another consequence of COVID) were found to work well for about three-quarters of participants.

Our experience is that, during the pandemic, NEDs have spent more time supporting executive management to make strategic business decisions in light of the effect of COVID on their businesses. However, survey participants cited regulation and compliance as principal reasons for greater demands on their role.

Participants’ comments indicate that NEDs, who are working mothers, value the flexibility of home working but are fearful that as COVID diminishes, practices will revert to pre-pandemic norms making it more difficult for them to become and perform effectively as NEDs.

It is clear, if proof were needed, that the NED role is evolving and is becoming more demanding.

This may be partly due to the pandemic. But there is growing concern about the impact of regulation and the balance of risk and reward.

A real challenge for companies is to attract and retain individuals from as wide a talent pool as possible to maintain and develop the quality of their Boards.

We are grateful to the London Stock Exchange Group, to the webinar panel and to all those who registered to watch “live” or receive a recording. Life in the Boardroom participants receive a complimentary copy of the report and non-participants can purchase a copy and sign-up to receive MM&K newsletters and details of future events by contacting us.

Find out more about Life in the Boardroom here.

Download a preview of the report here.

Life in the Boardroom MM&K

If you would like to discuss any of the points raised in this article, please contact: Paul Norris or Margarita Skripina.

Back to News

Registered Address: 6th Floor, Kings House, 9/10 Haymarket, London, SW1Y 4BP | Company Registration No: 1983794 | VAT Registration No: 577735784
Copyright 2024 © MM&K. All Rights Reserved | Site by: Treacle