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Critical friends or worthless allies?

16 Jun 08

I continue to hear excellent feedback about ‘Avoiding the Pitfalls’, free guidance issued by ICAS for private companies

The brainchild of the Business Policy Committee, the guide seeks to help board members avoid the corporate governance pitfalls that their listed company equivalents are forced by regulation to guard against.

In particular, the role of the non-executive director in the private company has been highlighted. Many CAs act as non-execs on the boards of private companies and with a strong financial background and knowledge of corporate governance, private businesses are well served by our members.

There is, however, no minimum requirement of skills for a non-executive director, apart from the fact that you must be over the age of 16. This means that it’s possible that some non-executive directors of private companies fall into the "mates from the golf club" category.

Many may be very good – but the chances are that without the relevant required range of skills and independence of mind, they may not positively contribute to the success of the company. Worse still, they may not be able to provide a sounding board nor serve as a critical friend to management.

Ultimately, non-executive directors should act as a guide to management and a check when required. That takes skill and judgement.

CAs by training and experience are well equipped to provide these attributes, but where they do not exist by profession or experience, should compulsory training exist? Potential candidates need to be closely vetted. Do they have the required experience and knowledge?

Proper due diligence on prospective non-execs prior to appointment will help to fill the boardrooms of private companies with more non-execs who are critical friends rather than worthless allies.

 

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Non-executive directors | Avoiding the Pitfalls
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