FDs as NEDs: A perfect non-exec, please.

Boardrooms packed to the hilt with token titled non-execs are no longer acceptable. What shareholders require to protect their interests – and what companies require to provide sound, independent advice on risk, regulation and best practice – are highly-trained non-execs with a background in business and finance, who can spot financial irregularities and ask the right questions of the company’s board.

Step forward the finance director. With all the necessary financial skills and business experience, FDs are prime candidates to take on non-executive directorships.

Take David Howell at Lastminute.com. He has held a non-executive position at Nestor Healthcare for over three years and continued to serve as chairman of its audit committee when he made his move to Lastminute.com in July 2001. Even now that he has his hands full as FD of a FTSE-250 company he says his non-exec experience is vital to his self-development. ‘I bring experience to them and I get something back. Nestor has a different firm of auditors (from Lastminute.com) and Nestor trades indifferent ways. It helps develop me as a person,’ Howell told Financial Director in February 2003.

Howell once considered giving up executive positions altogether. But he warns against FDs taking too much on board. ‘Nestor takes about a day out of my time each month. Having one non-exec position is good but doing more would be a problem. You have to make a choice. You should either build a portfolio of non-exec positions or be an executive with only one non-exec position,’ he says.

One finance director considering the portfolio route is Nigel Hall, the finance director of retail group Arcadia who is due to leave in March 2003 after a board reshuffle.

Hall’s view is that as he has been in retail for 18 years, a portfolio of non-executive and advisory positions would make him a more rounded businessman. It will also help him manage his work/life balance. ‘Part of my reasoning to acquire a portfolio of positions is I live in Devon and I have been commuting to London for the last five years. I want to have some involvement with companies locally so I can work more from home.

But I also think I can learn a lot from a variety of businesses if I take on several roles,’ he says.

Hall would have pursued a non-exec position even if he had not left Arcadia.

‘During my first three years as finance director Arcadia were having a pretty tough time and I remained focused on the business,’ Hall says. ‘In the last two years things picked up and my chairman and chief executive encouraged me to take a non-exec position on another board.

It would have happened in the fullness of time.’

But Hall says that the opportunities for finance directors looking for non-exec positions are still limited. ‘There is a danger in a non-executive environment that an FD will be pigeonholed as the chair of the audit committee.

I am not totally against that, but I have had responsibility for many commercial aspects of Arcadia as well as finance. I have a breadth of experience and would like the opportunity to offer that well-rounded experience to a board.’

Outside of the FD option there may be another way of combating the shortfall in non-executive directors. David Tilston, finance director of OverNet Data, thinks large companies may be sitting on prime non-exec candidates.

‘While FDs are well qualified to take non-exec positions there is an option that many big businesses may want to consider,’ Tilston says. ‘Imagine a company the size of BP. It probably has five or six rising stars being groomed as main board candidates. Why not encourage each of them to take a non-executive position at another company as a part of their succession planning programme?’

But if you are an FD considering a non-exec position, Michael Queen, finance director at 3i, has a word of warning. ‘I think the worst sort of finance director as a non-executive director is the one that reads a monthly report and spots a minor inconsistency. They’re focused on the numbers, spot a minor inconsistency and then they’re burning in the board meeting to say so,’ Queen says.

‘Inevitably as a finance director you’ve got to have a detailed focus – but I think in a non-executive capacity, it’s stepping back from that and being able to focus on what are the key strategic issues that the business is facing.’

This echoes Howell’s desire to ‘add value to the business’. Non-executive directors, like FDs, should not just be brakemen – they should drive the business forward.

• Tom Berry is deputy editor of our sister title, Financial Director, where this article first appeared.