About six days work a year, free lunches and £25,000. That’s what a non exec. director usually gets. But what does the shareholder, ultimately employing him/her get?
Well, that’s a vexed question and UK guidance on corporate governance is pretty wishy-washy. One non exec. told me cheerfully that he didn’t comply because he’d been on the board too long, he was too old and he held too many shares in the company. ( But the company is listed on AIM, so he doesn’t have to comply.) The last one staggered me. The more skin he had in the game, as they say in the City, the more his interests and mine, as a shareholder, are aligned. But orthodoxy in the UK says that if he has too many shares he may favour the interests of the shareholders over those of the employees.
It is therefore cheering to read that a Supreme Court in the US has ruled that the object of a corporation is to produce profits for the stockholders and that the social beliefs of the managers “cannot be their end in managing the corporation”. This will of course come under attack and investors can eschew companies that don’t operate ethically.
So what can a non exec. do to help a company become more profitable? Try and understand the business, the risks and see that the strategy is sensible is all very well but sometimes hard to achieve. It didn’t help shareholders in the Irish banks or Northern Rock and Marconi.
I have one sentence of advice to a chairman looking for a useful non exec. Look for someone who understands the industry, perhaps is still actively working in it, from whom you can learn the mistakes and the problems without having to duplicate them. In some industries a conflict of interest would make this impossible but in many it is a recipe for success. Managers and exec. directors can turn to the non exec. for advice and, for once, the shareholders get some value for their £25,000.