The NXD (Non-Executive Director) Parallax

Within the corporate management matrix, one position is seeing a surge in popularity in European boardrooms and an evolving awareness in the rest of the world. After my last and more esoteric post on the Y-U Protocol, lets discuss in more practical terms the definition and scope of the position of Non-Executive Director (NXD) and its impact on the corporate structure of an entity.

The NXD is not a new concept. The presence of an NXD has long been a sign of good corporate governance within larger corporate entities, especially multi-nationals. What is new is its ubiquity among small to medium sized corporate entities and the evolution of its role from one of a figurehead. The NXD’s actions in the modern corporate landscape are seen as a catalyst for an organizational structure to develop its knowledge base and actively educate its employees in the practice of new concepts.

Historical context.

 In the mid to late nineteenth century, when corporate law was scant and in its infancy, a multitude of fraud cases perpetrated by company directors led to the creation of the NXD. In a time when many loans could be secured from a bank based solely on title, reputation and familial networks, many corporations brought in titled individuals as NXDs. Both parties in this arrangement benefited as many titled families were richer in connections than in actual monetary terms due to a shift in taxation on large estates.

These peers were brought in to attend board meetings for a guinea and a free meal. As an interesting aside, the term “Guinea Pig” can be traced back to the introduction of the NXD. Mentioned in the writings of Anthony Trollope and Gilbert and Sullivan, they were cast as an object of ridicule among the literati yet respected by the public.

The Modern NXD

The NXD is a knowledgeable source of current business practices across industries and a teacher that can benefit an organization across its management structure without over burdening it structurally and financially.

What is a Non-Executive Director (NXD)

A non-executive director is a member of the board of directors of a company that holds no executive position. The NXD has more of an advisory role on the board tasked with using industry expertise to influence direction and advise other members. The primary scope of the NXD position is that of policy making, teaching and the introduction of new ideas and concepts to the board and throughout the organization. The fiduciary responsibility of the NXD is to the stakeholders of the company primarily stockholders and investors though this group may also include some or all of the members of the board.

This position, alternatively known as an independent director, is non-managerial. Thus avoiding any conflict of interest or allegiance to a single departmental team or managerial career path considerations when suggesting or implementing methodologies.

An additional objective of the NXD is to elevate the stature and the gravitas of the board when interfacing with stockholders or the public. The details of the NXD contract often outline the extent of the liability for the success or failure of the business as well as the statutory requirements and liability with regard to tax law and the adherence thereof.

Although it is not the intent of this piece to advise in any great detail what would constitute the experience and qualities of a good NXD, it certainly is a good place to mention some of those hiring considerations with the goal of covering them in more detail in the subsequent posts.

Qualifying experience: Though not a formalized list of qualifications, it is essential for the NXD candidate to possess a wide ranging exposure to multiple industries as a vital component of their experience quotient. Other qualifying experience includes having worked with both products and services across geographical locations and market segments. The ideal candidate must also have both entrepreneurial and teaching experience.

Qualities: The qualitative assessment of a candidate is by its very nature subjective but it is important to outline those qualities that are integral to the role. The essential NXD must be able to exhibit a certain independence of thought, gravitas when expressing opinions, confidence, impartiality and efficiency of communication in their ability to explore and express concepts in a teaching environment.

Quantifiable Advantages: The presence of the NXD in a corporate structure offers distinct strategic advantages that include their knowledge input, the communication enhancements between levels of management, their presence as a sounding board for various levels of management and as an arbiter for the board. We must not forget that as a resource, the NXD is a hugely cost effective member of the group.

The Parallax

An important pre-hiring and ongoing assessment of the NXD is the lifecycle of the contract.

It is apparent that the role of an NXD will continue to be an asset to most entities throughout their development. The essential utility of a particular NXD, however, is a consideration that is influenced by a number of functional assessments.

1.       Board membership changes will affect how the NXD is able to arbitrate between old and new members.

2.       Whether an NXD is exclusively employed by your entity influences the knowledge base that they bring to the table and the depletion rate of that base.

3.       The ability of the NXD to stay abreast of market and demographic developments and to maintain a teaching environ that benefits the entity.

With these considerations in mind, it is my opinion that, despite the entity’s will continued benefit from the presence of an NXD, the lifecycle of a specific NXD is between two and four years.

Corporate entities at this point would benefit from reenergizing the utility of the role with a new candidate. Business best practices would at the very least benefit from revisiting the qualifications of the individual occupying that role.

Though not a popular nor a commonly held opinion in this space, it is one I think is realistic and critical for the evolution of the board and the management matrix of the organization and surprisingly perhaps also a good move for the NXD.

Reference note from the author:

For over 20 years I have been a business and marketing consultant working in various industries and educating marketing professionals. I believe that an informed marketing professional can develop the tools to influence choice organically raising the profile of their brand and dramatically improving profitability.

My blogs and articles are based on experience gained and strategies developed using the Y-U Protocol. Over the years I have translated my experience into teachable courses that can be tailored to meet the needs of most companies.

My experience and qualifications can be viewed on my company consulting pages where my services as an independent consultant or a Non-Executive Director of Marketing (NXDm) can be contracted.

View these details at www.phiskal.com/consulting or contact me at askphiskal@phiskal.com .     

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