Michael (Lord) Grade, former Chair of the BBC, memorably remarked that a non-executive director (NED) was “a bit like a bidet – no one knows what it does, but it adds a bit of class.” Others have described NEDs as Christmas tree decorations, airbags and worse. Some have called for their abolition.
Yet, properly conceived, NEDs have a vital role in company governance. A useful starting point is the UK Corporate Governance Code (2024). Principle H advises:
“Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account.”
Of course, the voyage from principles to practice navigates stormy waters. Recruiters often use extensive tick-box lists to assess prospective NEDs. Wanted – perfect person. An old title from the Financial Times captures the problem well:
“Non-executive director: a task for which no one is qualified.”
So, how might the hard-to-find NED add value to decision making in an enterprise today?
A study of the brain itself might hold some clues. After all, it is the organ that has evolved to mediate all the decisions we make and actions we take.
One feature of its topology stands out – its hemispheric structure.
The neuroscientist and philosopher, Iain McGilchrist, presents compelling evidence that each hemisphere has a remarkably different ‘take’ on things. It is not that each side does different things – a largely-debunked hypothesis – but how each hemisphere attends to life that is important.
The right hemisphere (RH) attends to the world in watchtower fashion: a broad, flowing, holistic, continuous scan. The left hemisphere (LH) attends with a narrow, static, partial, fragmented focus – it ‘re-presents’ the world as a useful guide map. Our world view is a synthesis of this duopoly.
A useful metaphor is the robin redbreast. Birds, like humans, have two-sided brains. The robin needs to pick out a crumb of bread from a snowy path, a facility for which the LH is calibrated with its spotlight focus. Simultaneously, it needs to ensure it does not become food for a lurking fox, something performed by the radar of the RH.
Similarly, the human brain is engaged in coordination activities between narrower and broader attention. With a twist. The main tissue connecting the human hemispheres (the corpus callosum), is largely inhibitory, strange for an organ devoted to connections. The reason is to limit distraction, with information exchanged only when necessary. It is often best for the RH not to know what the LH is doing, and vice versa.
Back to corporate governance. Think of the board as a brain. Many boards have a strong inbuilt LH - senior executives with detailed knowledge of the business plan. A good chief executive officer attracts investors and inspires employees by articulating a map of the corporate terrain, showing how the company intends to gain ground. A successful chief financial officer adds the financial grist.
These inputs are LH-skewed. Therein lies their value but also the danger.
Frédéric Bastiat argued that broader and longer-term insight (RH in our terms) comes from one of two masters: experience and foresight. In his words:
“Experience teaches effectually, but brutally. It makes us acquainted with all the effects of an action, by causing us to feel them.”
Bastiat invites us to substitute, where possible, the gentler teacher, foresight.
By this, he had in mind not some super Oracle, but to scout for what is “not seen.” This might include the longer-term effects of a board decision, or its shorter-term implications outside of ‘the map’ — to see what might otherwise be missed.
It is here that NEDs have an important governance role to play — seeking context and thereby helping the senior management team to make the best decisions possible in an uncertain world.
Experience. Yes, we need the war veterans. But there is more to it than that, and foresight holds the key, with important implications.
Here is just one to ponder. Often, we exclude younger people from NED roles because of their perceived lack of experience. Yet some young adults can successfully identify hidden connections and relevant new embryonic trends, perhaps aided by their easier acceptance of modern technologies.
More generally, diversity embeds a broader vision and wisdom. Foresight is scarce, but embedded in a very wide spectrum of society, making it an attractive complement to experience.
Drawing an allusion between sovereign and corporate affairs, an earlier UK governance document, The Higgs Review (2003), quotes favourably the Victorian economist Walter Bagehot´s view on the monarchy, despite it being largely invisible and poorly understood.
“We must not let in daylight upon magic.”
Working from the shadows, and looking into the shadows, a good NED can also bring a little magic to the boardroom – God save the NED.
Further reading: Iain McGilchrist – The Matter with Things. Perspectiva 2023.
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Disclaimer: The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.
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