The value of a non-executive experience

Penny James, CFO of car insurer Direct Line says that taking up a role on another company’s Board is not just a rewarding experience, but also the means to tap into alternative ways of doing things at Board level in other companies.

“What it does is let you get another window into how people do things, it lets you broaden your experience that you can draw from,” says James, who undertook the non-executive director (NED) at insurer Admiral when she was in her previous role, as chief risk officer of insurance giant Prudential.

“Through that period I was on two Boards, which operate in very different ways with very different characters, different issue sets and topics, interests and concerns, but it gave me the ability to compare and contrast, between them, to take cross-learnings,” says James.

“The interesting thing about being a NED is that you go through different phases, you’re taking more from them and there are phases when you’re inputting more. When you’re new you think you’ve got to contribute all the time, but actually I think part of being a great NED is being able to listen and knowing the times when to step in. There were times when I think I contributed to them and there are certainly things I learnt from them,” she says.

Adam Akbar, MD of headhunting firm Bronzegate says for CFOs contemplating a non-executive role, a key attraction is the exposure it can give to working with another company and a different Board. “Whether it is in a listed or private company non-executive role, many CFOs, who we have discussed the idea of taking a non-executive role with, count the experience of working with a new management team, a different culture and even a different sector as greatly appealing,” he says.

Akbar says there is a generally agreed sentiment amongst CFOs that this experience will only benefit their own organisation and the executive role they currently execute. He says the ability to pick up new ways of thinking, varied approaches to leadership and ideas that may be useful in the context of their own organisation is primarily why both the CFO and their current organisations typically agree there is great value in external non-executive appointments.

“This cross-fertilisation of ideas from sector to sector can occur most effectively through either direct executive appointments from other sectors or via the non-executive route. In the modern era, it is increasingly common to witness Boards composed of industry leaders from widely diversified sectors where healthy debate and the introduction of new ideas is actively encouraged to provide fresh perspective,” says Akbar.

Measuring the value of being a NED

The recent Bronzegate 2018 FTSE 100 CFO Analysis, the firm’s annual review of CFOs in the upper echelons of the FTSE, shows that 40% of CFOs who are operating at Board level today have been appointed from within the organisation, having occupied a variety of leadership roles within the same business.

“Whilst this provides an excellent platform to then lead the overall group, there is a potential limitation on the breadth of general industry experience they have gained versus CFOs who have worked as Board CFOs across a number of different organisations. This general industry experience is not related to any technical limitation but primarily involves the numerous ad hoc learnings gained from experiencing a different style of leadership, business strategy and corporate culture,” says Akbar.

He says the insight gained from observing a different business environment can prove valuable in a variety of scenarios, especially when facing new organisational challenges which another organisation may already have encountered and overcome. “Non-executive roles can be harnessed to bring back definitive learnings into an organisation, partly through directly enquiring into areas that could be beneficial but also via the osmosis of learning that occurs through working with a different management team who will often have alternate methods of handling similar problems,” says Akbar.

The application of proven solutions and the implementation of new ideas generated from external non-executive appointments can be a powerful enabler of business performance and corporate best practice. The learnings that a non-executive CFO can bring back from an external organisation can also include aspects of how to implement financial best practice and additional aspects of the CFO role through observing how another CFO and finance function might operate, says Akbar.

“Depending on how broad the exposure to the external Board is, a CFO could also feasibly bring back some insight into wider operational management challenges e.g. how a business leverages digital, ERP or how a sales force is managed effectively.

“Despite the limited time a CFO will spend in an external Board and the natural focus of non-executive CFOs to be financial e.g. as a chair of the Audit Committee, there can still be many opportunities to take interesting ideas and initiatives back to their own organisation, making a non-executive role valuable not just for the CFO’s personal advancement but also for their business,” says Akbar.

The learning curve

Simon Boddie, now CFO of industrial thread manufacturer Coats had been finance chief of electrical goods provider Electrocomponents for five years when he was made a NED of recruitment firm Page Group. “I enjoyed Electros and wanted to stay there, but I wanted to keep learning and I felt that a non-exec would be a good way of doing that, I am by nature better at learning on the job than I am sitting in a classroom.

“It was interesting because it had some similarities to Electros- it was global, organic growth, but it was a very different sector in terms of the whole recruitment piece, versus industrial distribution, so I felt there was enough that was common, and I could bring some of my experience, but it was far enough away that I would learn some different experiences,” says Boddie.

“Some of the challenges and issues that you face are the same, some of them are quite different, but also you get a feel of how are some parts of the Chinese economy actually operating, or the French economy, so you get two very different windows on the same market, so that was also helpful,” he adds.

Boddie, who was appointed chair of Page Group’s Audit committee says: “Also it helped me in my day job to understand where NEDs were coming from, I think being more understanding and joining up those dots,” he adds.

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