Posted: 2nd August 2016
One of the topics that nearly always comes up in my discussions with aspiring non-executives (in financial services) is; “how do I choose which type of board I should sit on?” New non-execs need to make sure they are aware of, and comfortable with, the role and challenges awaiting them.
With a multitude of new financial services firms emerging into the market (particularly in retail banking), non-execs need to be even more savvy in their assessment of their opportunities.
Below are seven considerations non-execs should think about before saying 'yes'.
1. FCA risk outlook
What are the issues on the FCA’s agenda that are likely to impact the company you’re planning to join? Last year the focus was on topics like consumer lending, management accountability and pension reform. The implication was that non-execs overseeing consumer credit companies, banks, building societies, mutuals, insurers and pension providers were going to be in for a busy time. So what’s on the regulator’s agenda for the next 12 months and what could this mean to you in terms of risk and workload?
2. Financial performance
What is the prospective firm’s net debt/net cash position? Is it profitable and is there a healthy cash flow? What are the organisation’s long-term liabilities? All of these are important factors in determining whether you will be on a firm financial footing with an opportunity to significantly grow the business, or faced with a precarious situation from which you will need to steer the firm.
Look at brokers’ reports, an annual report if they are a PLC, or financial statements if they are a private company. If the firm is backed by private equity, look back at due diligence reports and the private equity firm’s investment paper.
Is the firm a good ‘fit’ for your beliefs? What are their values? How are these communicated and ‘lived’ across the organisation? Determining the culture of a company is not always easy. It’s often felt to be intangible, with firms simply describing it as ‘the way we do things around here’. So how can you check that the way this company goes about its business is going to gel with you, particularly as ‘culture’, ‘putting customers at the heart of the business’ and ‘the tone from the top’ are all regulatory imperatives?
A good starting point is looking at how firms communicate both externally and internally. Social media is awash with customers commenting on how they’re treated by companies.
How are new joiners welcomed into the business? Asking to sit in on day one of the company’s induction programme is a good way to check out the ethos of the business.
Site visits and meeting customers and employees behind the scenes and on the frontline are useful ways of getting a ‘feel’ for how the company undertakes its business. If a CEO feels uncomfortable about this, offer to sign a non-disclosure agreement (NDA). If s/he still objects, it probably tells you something about how the business operates.
What are your prospective firm’s business and shareholder strategies? Are there plans to merge with or acquire other businesses? Is it a PLC or private? Is it private-equity backed? Have you considered the firm’s obligations to its shareholders based on this?
While CEOs might be reluctant to reveal some of this information before you join, it’s important to get a sense of the company’s future direction. When you have established as much as you can, consider whether you can add value to the firm’s business plans, what that value will be (e.g. technical expertise, market or regulatory knowledge), and whether you buy into the vision of the rest of the board.
5. Board colleagues
Who sits on the board currently? Do you know any of the non-executives? If the answer is yes, this should be your first port of call in gaining insight. How long have they been on the board? What are their strengths? Do board members have similar experience and how does this correlate with yours?
If you’re different, how will this be perceived? Will you always be a lone voice trying to fight your corner? Or if your experience is similar to theirs, what added value will you bring?
Being clear as to the CEO/board’s expectations of you should be key to making your decision. Do they want you to challenge and bring fresh thinking or are you there to confirm existing views and beliefs?
Does the board set objectives with/for their non-execs? Are you clear what’s expected of you and how your contribution will be ‘measured’? Once expectations are understood, you need to be comfortable that this aligns with your skill set and beliefs. And how independent is independent? Non-execs are supposed to sit outside the normal day-to-day workings of the organisation and feel confident that their challenges will be welcomed and listened to; will this really be the case in this organisation? Once again, meeting two or three of the existing non-execs and asking them to explain their roles and how things work in the business will give you a good ‘feel’ for the firm.
7. Due diligence
To complete your due diligence you may want to speak informally with representatives from the FCA, consultancies who work in financial services and the law firms whose partners focus specifically 0n this sector. While they’re unlikely to go ‘on the record’, they may be happy to share their views on how the firm operates. And there’s the media; while not always a reliable or unbiased source of information, a trawl through Google will throw up the latest news and stories about your firm.
Due diligence is a two-way street; while most financial services firms invest time in making sure a new non-executive board member is going to add value to their decision making and growth, equally the aspiring non-exec needs to feel comfortable that the company he or she is joining is right for them.
Following these seven steps will enable you to obtain the insight and confidence you need to make the right decision.
Huntswood’s non-executive networking community helps aspiring and current non-execs expand their network while providing knowledge, insight and expertise to answer any pressing regulatory questions.