The survey, conducted by market research company MORI for insolvency firm Begbies Traynor, said 82% of companies with less than 100 employees do not have any non-executive directors.
Among the other 18% of companies that do have NEDs, more than one in four are recruited on the recommendation of a friend or a family member.
And of the non-executive directors in the 185 companies surveyed, 44% were existing business associates.
The worrying findings come ahead of the government’s Higgs report, which is due out shortly and is examining the role of non-executive directors of quoted companies.
Nick Hood, senior London partner of Begbies said: ‘It is terribly disappointing. The need for decent non-executive directors is greater in smaller companies than for larger ones.
‘Each day we see businesses in difficulty because executive directors have been too close to the company to make the hard or prudent decisions that needed taking – decisions that should have removed the need for us to get involved.
‘[Non-executives] can warn against excessive risk taking, and are also able to counter-balance the common lack of broad based commercial experience in the management teams running smaller companies.’
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