The Importance of Independent Non-execs On a Family Business’s Board
24th January 2020
In this article we ask David Whileman, Head of Partnership Capital at Inflexion, about the role of NEDs in family business.
1) Apart from the fiduciary duties, what are the most important roles an independent NED (iNED) can play on a family business board?
Rather than presenting solutions, a good Independent Non_Exec (iNED) creates an environment where people are comfortable and confident to put forward ideas. They need to bring the best out of others, and there are three characteristics that support this. Firstly, they need to build trust, and this can be earned through experience and knowledge. Secondly, communication is very important: are they good listeners? Finally, humility. It is important to create an environment which supports ideas to flourish, and this requires empathy. The iNED should be humble enough to allow the seed he plants to be echoed a week later by a member of the family business and then to be willing to allow others to take the credit when it grows.
2) Where do you see the key challenges that an iNED face on a family board and how might you overcome them?
The role of an iNED is crucial in businesses where the leader is the main family shareholder, since there can be a concentration of leadership and shareholding. The iNED must be willing to challenge in a constructive way which can create bandwidth around how the business can solve a problem. This is particularly true in a downturn; whereas a lot of businesses look to the past for a solution, a good iNED should bring an element of fresh thinking. They may even have a network they can tap into and provide someone who has seen it and done it and learn from their experience.
3) How can an FB board best go about recruiting iNEDs – what qualities and skillsets should they look for?
The most important – though often underemphasised – point is chemistry with management, the board and the wider stakeholder base. This really trumps everything. The right skillset is also important, if obvious. If the person has experience in what the company is aiming to achieve then it can be very helpful as the business grows in that direction.
A recruitment consultant is the obvious route to finding the right person, but there are other methods. For example, if you have a strong investor behind you then you may be able to draw on their resources and network. When assessing candidates, think: ‘Are they asking the right questions? Am I enjoying my time with them?’ Experience is part of it, but chemistry with the business is more important than the sector expertise.
4) What lessons have you personally learnt as an NED over the years?
The personal side is underrated; the iNED has to complement the strength of a passionate family member and help be constructive where there are weaknesses. But I’ve sat on boards where people are chosen based on their CV and they add very little value because their appointment was about status. This is often because the business sees the position as a cost and so want to justify it by getting something out of it immediately. However it should really be about thinking critically and meeting people who may offer a different perspective.
5) What are some of the best examples you’ve seen of a highly effective family business Board? What were the ingredients?
Family members with a view to diversity are the key. Foster + Partners exemplifies how this can be done wall. Foster was great at bringing in a diverse range of people into the company. Lord Foster was excellent in recognising talent and brought both nxd’s as well as individuals as advisors with broad backgrounds to enrich the discussions at the Board.
We (Inflexion) worked with IT services company FDM to address the shareholder base. It had been a family business before listing on LSE’s AIM, but then management felt it was undervalued by the public market. We de-listed the business and over a nearly five-year period helped to expand it geographically and digitally, ultimately seeing a 5x growth in profits and 4x growth in headcount. During this period the new iNEDs were appointed at appropriate points on the journey supporting the original founders to continue the lead what is now £1bn business and a FTSE 250 stalwart.
6) What advice would you give to Family firms when appointing new iNEDs
Lead with personality and communication skills. Experience and CV are important but not the utmost selection tool, and I’ve seen how prioritising this can lead to an ineffective board member with little meaningful impact. Big corporates aren’t necessarily the best hunting ground – what’s really important is to find someone who understands the business’s limitations as well as the strengths. They shouldn’t necessarily look to change the business but rather to enhance it and create an atmosphere where people can challenge the status quo.
7) What advice would you give to someone who is about to become an iNED on their Family business B board?
Before taking the role, meet as many of the stakeholders as you possibly can to get a real sense of the DNA of the business. You should feel confident you can help develop a culture that maintains the creativity but challenges in a positive and constructive way within the board.
