The finnCap study, supported by the QCA, surveyed over a hundred NEDs of smaller quoted companies. It has found that nearly two thirds (61%) of respondents have turned down NED roles with growth companies. Almost every respondent (98%) believed that the work required and the risk profile attached had increased in recent years, while 81% believed that the average remuneration is not representative of the work and 94% agreed that remuneration is not aligned with comparable markets.
This indicates that remuneration presents major barriers to attracting NED talent. One of the key issues explored was whether NEDs had received shares and share options/incentives as part of their overall remuneration – of which a minority of respondents had.
However, the survey revealed that issues of shares/grants of options/incentives were typically met with a negative investor perception. Importantly, 71% of respondents suggested that it is possible to develop a share options/incentives framework that does not impede independence.
Other barriers to remuneration that were cited included a combination of cultural, legal and regulatory factors, with the main cultural barrier being driven by policies set by proxy agencies. These policies are applied to companies irrespective of size, sector or individual needs and can solicit negative voting recommendations, shareholder dissent and negative press coverage; with the potential fall out playing into the wider issues around general; attractiveness of being a quoted company NED.
Beyond remuneration factors, nearly two thirds (66%) of respondents stated that the role of the NED for a smaller growth company was fundamentally different to that of a mid-large sized business. Feedback suggested that NEDs at smaller companies are more strategic in nature, given they play an influential role in setting out and shaping a growth strategy to steer the future of the business.
The survey also highlighted concerns that board selection has become a “box ticking” exercise and indicated that diversity has become a divisive topic.
View the full report finnCap – Better Boards for Growth Companies here.