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NED Q&A

Hear first hand from NEDs on the biggest challenges they face, how they are tackling these, and their tips for success.

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ADAM JONES
CHAIR, AB COMPANY

This month we sit down with Adam Jones to discuss the biggest challenges he sees facing NEDs in the coming months and years, how he is tackling these, and his tips for success. Number one on the tips list: understand your shareholders and their concerns, but remember your responsibility extends to all stakeholders.

What do you see as the biggest challenges facings boards at the moment?

  • It’s a mix – you have the interest rate issue so cost of borrowing is eroding earnings

  • Obviously, post pandemic and Ukraine war recovery is still impacting businesses, especially those with operations in Ukraine, Russia or China

  • China is an emerging problem as well – that country is struggling and we’re starting to see people reconsider their production bases there

  • There also needs to be transparency, and making sure investors are well informed, and early, so there are no surprises in the market

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Where are the skills gaps with non-executive directors?

  • You can especially see this in the small cap space, the quality of advice and challenging management on capital markets and group strategy is generally poor

    • They do not challenge management hard enough on strategy – this is primarily a function of inexperience and the board not fully knowing what the shareholders are saying

      • We can see in the case of Elliott and other activists that some Boards are oblivious to the demands of shareholders

    • A lot of NEDs tend to come straight from managerial roles in large businesses – the small cap space is a very different beast – how do you grow, build scale while informing the public arena – I’ve experienced enough NEDs who don’t advise and sit happy collecting fees – you don’t need to say much, but make sure its meaningful when you do

    • You should be a non-exec if you have already been in a C-suite business, otherwise it is very difficult to understand the markets and how it all works

  • Head-hunters want experienced NEDs, so how do you get there? How do you break into it?

    • It’s difficult, but:

      • Do courses in the IoD

      • Join a non-public company before joining

      • Bring in knowledge expertise at a sector/technological/operational aspect (You can then learn the capital markets/strategic aspect)

        • Look at private equity boards

      • Head-hunters love C-suite experience – CEO, CFO, COO etc.

  • For larger companies – it is essential NEDs have the combination of sector expertise, capital markets and existing board experience

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In the age of AI, are Boards sufficiently prepared for technological threats and opportunities facing their businesses?

  • On AI I don’t think many businesses are prepared at all, but that is likely due to the fact that AI won’t significantly impact their businesses – its very nascent so people haven’t got their head’s round it yet – it will likely become a larger issue as companies get reports up the board in due course

 

  • On technological threats – definitely – there is always something on the lab bench that will threaten your business in 5-10 years time

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How hard is it as a Chair to meet diversity requirements whilst also ensuring the company has the best possible mix of skills and experience?

  • Its difficult, but you try and achieve a mix without the expense of having a difference of experience on the board

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How did you find the transition from C-Suite to NED – what were the biggest challenges?

  • Getting your first position is the biggest challenge

    • Best off starting in a private/PE backed company first so you have shareholder interaction, then springboarding off into a public company

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Looking beyond shareholders, how do you view a NED’s responsibilities to other stakeholders, for example employees and wider society?

  • As a director of a business, your responsibility is to ALL stakeholders. So while you need to ensure management is properly remunerated, rewarded and incentivised, You need to think about strategic suppliers, partners (marketing etc), customers (are you in regular enough contact, are they being treated well etc.), and last but definitely not least, employees

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What is your secret to being an excellent NED?

  • You need to be generally supportive and encouraging to senior management, while constructively challenging them on new business, strategy, tactics and implementation/execution – it’s all good to come up with a plan, but are they executing? If not, why not?

  • If you speak to top small and mid-cap institutions and funds on companies up to £1bn mkt cap, you can generally hear them complain about how some boards are asleep at the wheel – avoid this by listening to your shareholders! This is where getting PE-backed board experience is key

  • Do NOT criticise everything and pass it off as doing your job

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