Entrepreneurs Need to Make a Non-Executive Decision
Saturday, March 14, 2009 7:55
Non-executive directors are getting a hammering at the moment. The argument seems to be that, because they serve on the boards of big companies, they should have seen this financial crisis coming. This attitude is not helpful.
Yes, they are partly to blame, but so are the media that hyped the situation, banks that got greedy, regulators that failed to supervise matters properly and the investing public, who forgot that high reward means high risk.
Non-executives should not bear the full weight of the blame for what has happened and small and medium-sized businesses should not let these arguments prevent them from seeing the benefits that non-execs can bring.
At the end of the last recession, it’s been found out by some experts that having a non-executive, or, indeed, another external business adviser, could help make a significant difference both to survival rates and to business profitability. The reason is that entrepreneurs may have narrow business experience and operate largely alone when it comes to making important decisions. They’ll know their product or service inside out and often will be remarkably passionate about it, but thy may not be experts in HR or finance or any of the other everyday aspects of running a business. Non-execs, however, are experienced businesspeople who can bring specific skills.
Non-executives also offer entrepreneurs an external perspective. They can help them to see past the hurly-burly of day-to-day business pressures, such as how to pay wages and the VAT bills, what to do if a key client or customer leaves, or how to cope if someone is off sick. So, they can help make the right strategic decisions for long-term growth. This extends to ensuring that entrepreneurs consider profits, not simply turnover.
During a downturn, non-execs are often the people who have to tell business owners that they need to cut costs, perhaps by doing unpleasant things such as cutting staff. Non-execs should have enough distance from the individuals involved to make hard calls and enough experience to make decisions that are brave but not foolhardy.
Choosing the right non-executive for a particular business doesn’t mean that entrepreneurs should approach the biggest name they can find. Business owners should look for someone with relevant experience. Entrepreneurs need someone who has had piratical involvement in SMEs, not a failed bank manager. This does not mean that they need to hire someone who has worked in their exact industry or sector. The best match will be someone who has skills that complement those of the senior management team.
Finally, this will work only if the entrepreneurs are willing to listen to the non-executives; their job is to improve the business, not to make entrepreneurs feel better about themselves.
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