Only 41% of company advisers believe that Non-Executive Directors (NEDs) provide good value for money, according to the latest PULSE survey from accountants BDO and the Quoted Companies Alliance (QCA). This perception of value has dropped from 57% when the same question was asked of them in 2013.
The survey revealed a stark contrast in the views of the small and mid-cap quoted companies and their advisers (brokers, bankers, accountants, lawyers etc.), with the companies themselves having a very positive view (83%) of the value for money that NEDs represent, up from 71% in 2013.
In order for NEDs to provide better value, companies suggest that they should work a couple of extra hours a month per directorship in addition to the average of about 14 hours a month that they are currently working. Advisers, on the other hand, believe that NEDs should be making considerably more effort, suggesting a monthly total, on average, of 23 hours would be more appropriate. With NEDs holding an average of three directorships and making an average of £33,400 for each position, they are earning around £110, 000 a year for six full days a month.
There were further differing opinions between companies and advisers over the perceived independence of NEDs. Whilst companies felt overwhelmingly that their NEDs are sufficiently independent (93%), only 64% of advisers felt this is the case. However the two groups did broadly agree that NEDs made a valued contribution in terms of offering a broad view on business matters, providing checks and balances and helping to improve corporate governance, although companies would like them to open their address books more to provide networking opportunities and to provide more forward thinking for their businesses.
Scott Knight, Head of Audit at BDO, commented:
“There is clearly a divide between how companies and their advisers view the value for money that non-executive directors represent. The fact that the vast majority of firms are happy with the return on investment they get from these individuals suggests that the amount of work that they do behind the scenes, in terms of counselling and providing an alternate point of view, is of great value to Boards, but rarely seen by the outside world.”
Tim Ward, Chief Executive of the Quoted Companies Alliance, added:
“Non-Executive Directors are essential for an effective board, however, there are mixed views about whether they are sufficiently independent. Independence may be a state of mind, but few of us are mind readers, therefore NEDs need to think carefully about how they demonstrate this important trait.”