You should have some form of induction programme. However, rather than leave it to the Company Secretary, it will be a better and more comprehensive one if you take control of it. Unless you’ve already met them in your induction programme, you should meet the following;
The executive/operating board members. The chances are that they will all be very upbeat and positive to you (whatever their private views), but you should get a sense of the strength of the team. If one or more are at all reserved in their comments, then this should be a warning sign.
The Audit Partner. Ask them about their view of the quality of the CFO, his senior staff, the control environment and whether they have had any disagreements with management over accounting.
The broker. They will be positive about the company. However, ask them about who the significant shareholders are and what they say about the company. Ask for their latest written feedback to the company about shareholders’ views (typically produced following a results announcement). If there are brokers’ notes, and you haven’t read them yet, ask for them all, not just the favourable ones. Don’t however believe that just because they have the company on a ‘Buy’ rating that everything is fine. It’s rare that a broker’s note has a really insightful critique of a company.
Others. There may well be others, especially if you are to chair a committee. For example a Remuneration Committee chair will want to meet the remuneration advisers and the Audit Committee chair will probably want to meet some of the finance executives.
The business: It is worth at least one site visit if the business has different locations. You gain a much better feel for the business outside the boardroom than in. Try to get a local manager to escort you, rather than an executive director. You will learn more that way.
The product: If possible, buy and use the product yourself. If it’s a consumer product, ask retail store staff what they think of the product. One business told me it had great product reliability, but a very knowledgeable sales assistant listed to me how many returns he got.
- Meet with the Chairman
It’s worth speaking again to the company Chairman after the appointment has been finalised. The chances are that they will be much more open with you now that you are on board. Talking to the Chairman should enable you to establish a good starting relationship with them, and you can ask them if there are any particular things or sensitivities to watch out for.
I know one company where the incoming NED was offered such a lunch and expected a convivial chat. However, the Chairman really wanted to tell the new director that the CEO was having an affair with one of the executives. The fact that the Chairman waited until the appointment was announced to reveal this told the NED as much about the Chairman, as it did about the CEO’s love life. Incidentally, these sort of liaisons are not as uncommon as you might think, and are usually corrosive to the team, so it is one of my due diligence questions!
- Your first board
A wise NED will approach their first board meeting with care. There will be unwritten codes of etiquette that vary from company to company so you will need to learn them individually. It helps if you have identified a kindred spirit on the board, who can tip you off to them.
Directors, especially NEDs, often arrive up to half an hour before the start. This gives you a great chance to chat to your colleagues in a relaxed format. Work out where the chairman sits, usually in the middle or at the end, so that you don’t sit in their seat. He may want the CEO or Company Secretary next to him as well. Don’t feel shy about asking: ‘Where should I sit?’
It is probably wise not to say too much in that first meeting as you gauge how the board runs. Some boards like lively discussion and some are more sedate. Some tend to let the executive directors speak for most of the time, and the NED’s may hold their fire until after the meeting. If you observe the meeting carefully, you will soon understand the modus operandi. This doesn’t mean that later you can’t rebel against these unwritten rules, if you think that they impair the board’s decision-making. It’s just that you need to learn the rules first before writing them off.
No one will expect you to know the business so this is your chance to ask ‘stupid’ questions. Incidentally I’ve asked hundreds of ‘stupid’ questions, and never has anyone actually complained. However quite a few times it has proved to be a better question that I realised.
Shortly after the first board, it may be an idea to speak to the Chairman, and ask how they felt the board went and ask if he was happy with your contribution. It shows that you are thinking about the team dynamics and your own part in it and respect the Chairman’s views. A good relationship with the Chairman is absolutely crucial for a new NED.
Starting an NED role is a very exciting time. The induction programme lets you learn about a new business and it is fascinating to see and participate in the way different businesses govern themselves. It is important that a new NED adapts initially to the existing way of running of a new board, even if they may want to change it later.
- Take control of your induction programme and list who you would like to meet.
- Speak to relevant people and be quite challenging, especially with third parties.
- Try to include site visits and use the product. Ask other people what they think of the product.
- Meet with the Chairman again after most of the induction programme is complete.
- Use your first board as a key part of your induction programme and listen hard. Make your first interventions short and to the point.
- Ask ‘stupid’ questions. You won’t regret it.
- After the first board, check in with the Chairman again.
- Enjoy being a new NED. It’s great fun and a real privilege.