Old boy network goes by the board

Non-executive directors have come of age. Jonathan Hick explains how increasing numbers of unquoted companies are discovering the benefits of what has been described as the cheapest form of consultancy.

The old boy network is dead. The days when non-executive directors were chosen to sit on the boards of quoted companies simply because they were "well-connected" are gone. And good riddance.

Today, non executive directors are a vital tool for venture capitalists wanting to maximise the growth potential of their investments. Many VCs will decide to appoint not just a non-executive chairman but another non-exec director as well. Their role is generally to sit between the two parties - the management team and the investors.

On the one hand, they will look after the interests of the investors by making sure the management team meets its targets. And, on the other, they can act as coach and mentor to the managers, who will usually be experiencing equity in a business for the first time and may feel daunted by being in a highly-leveraged situation with considerable debt around their necks. The non-exec will usually have broad shoulders and at least a sprinkling of grey hairs to help to provide a calming influence..

Non-execs will be responsible for maintaining boardroom discipline and ensuring that the rules on corporate governance are adhered to. They may even be offered financial and equity incentives to make sure that the company performs. Another benefit is that they can help to plug possible weaknesses either in skills or experience among the management.

So who are these supermen? Many will be senior executives with major PLC experience, while others will be entrepreneurs who have been through the cycle of management buyout and eventual exit and want to pass on the benefits of their experience. From our experience, I can say that many of the non-executive directors coming on to the market are very good indeed. At Directorbank, quite a few of those on our database are still in their thirties. Indeed, it is becoming fashionable for executives, such as former Asda boss Allan Leighton to "go plural" at a much earlier age than happened previously.

All this means that the once quite small pool of talented executives available to be non-exec directors has expanded enormously. At Directorbank, we are creating one of the largest quality databases in the UK so that venture capitalists and others have an extensive à la carte choice.

Obviously, the appointment of the right non-executive chairman is crucial to all parties and the decision should be the responsibility of management and investors. The successful candidate will need to be able to rely on their support and respect.

As well as the usual business experience, it is common for the chairmen of those companies that expect to float in due course to have previous flotation experience. Furthermore, where a management team is looking to mount a management buy-in, the existence of a good chairman on board pre-deal can significantly enhance the prospects of pulling off an MBI.

The benefits that non-executive directors can bring to unquoted and quoted companies are becoming increasingly apparent. And for say £15,000 to £30,000 a year, they are probably the cheapest consultants a company is likely to get.