What it’s really like as a non-executive director

Over the past 15 years I have experienced the good, the bad and the ugly of serving as a non-executive director (NED).  Those experiences include serving on the boards of listed companies Telstra, Fletcher Building, David Jones, and on the boards of Medibank (at the time government-owned/unlisted), several smaller start-up companies, and a not-for profit I founded.  

When people seeking the opportunity to build their board portfolio ask me about my NED experience and whether I would recommend it, I make the following three observations:

1.     Be careful what you wish for

Being an NED can be an enjoyable and rewarding experience. I recommend it but it comes with risks. Some are overstated, such as the risk of legal action being taken against you personally. Assuming you are honest, acting in good faith and governance practices are of a reasonable standard, this is highly unlikely to happen.  

Another risk is reputational risk, such as that I faced at David Jones, where another director and I were wrongly accused of insider trading. This type of risk is real if your organisation is involved in controversy or difficult times. The only good news with this risk is that people have short memories and time lessens the pain and personal impact.

The biggest risk is to how you spend your time. When things are going well in the business, being an NED can be smooth sailing, however when challenges arise, the role can become very time consuming. For example, when Telstra was negotiating the NBN deal with the Australian government, the board worked many hours outside of scheduled meetings until the process was concluded. 

There is plenty of evidence that bad things can happen to good people, and no one is immune. Make sure to do thorough due diligence – to the extent possible – and ensure your board portfolio (and life) can withstand a crisis with one of your portfolio companies. 

2.     The character and capability of your chair and CEO matter most

Even when things are difficult, life as a NED can be enjoyable if you have a chair and CEO who are capable and of good character. When one or the other is not up to the task for whatever reason, life as an NED can be very challenging. When both are not up to the task, life as an NED is a nightmare. 

Character matters most, so understanding the nature of the chair and CEO is vital. Areas to focus on include aspects of character such as:

• • Being motivated to serve rather than being self-centred
  • Demonstrating self-awareness and the ability to apply an open mind to change 
  • Being coachable and willing to listen to and accept feedback from others

In the case of the CEO, important traits include acting like a head coach rather than a star player, demonstrating the ability to build a strong executive team and developing talent. 

3.     “Cross the line” to examine the performance of the executive team

It is important to obey the distinction in roles between a board director who governs, and a CEO or executive team member who manages. This distinction is characterised in governance language as “the line” that shouldn’t be crossed, where a board director encroaches on the job of a manager by helping too much.  

Unfortunately, “the line” can be an excuse not to dig in and really understand the dynamics of the top management team. While there is generally good governance focus and process to review business and CEO individual performance, how the top team performs as a team is a significant leading indicator that deserves more board attention and measurement.  

As an NED, I would “cross the line” by asking members of the executive team one or both of the following questions:

• • Rate out of 10 (1-low to 10-high) how well your team is performing relative to what is possible with the resources you have available today. 
  • Rate out of 10 (1-low to 10-high) how well aligned your team is to execute the strategy  

The point of the exercise is not to dwell on the score, but to identify the most important things that need to happen to improve performance. That’s the conversation with the CEO that should follow. The answer to these questions provides directors with more insight to what is really going on in the leadership team of the organisation. 

From often having that conversation with individuals and teams, I’ve learnt that most impediments to better performance relate to how a team works together and have little to do with the domain or industry they work in. 

I’ve also learnt that the CEO’s character and behaviour have a very significant influence on where issues in a team originate and how quickly they can be resolved. 

I highly recommend incorporating a formal, six-monthly survey of the executive team which includes the above questions. This survey can provide important insight to the character and capability of the executive team to execute strategy, and opportunities to improve performance.

 

Steve Vamos has over 40 years’ experience in the tech industry in the USA, Australia, New Zealand and Japan. A former CEO of Xero, he has been an executive leader with Microsoft, Apple, ninemsn and IBM. Steve’s new book, Through Shifts and Shocks: Lessons from the Front Line of Technology and Change is available online and in bookstores from 27 November 2024.