Non-execs are a necessity in a public company, but smaller concerns can often benefit from their cost-effective support ... especially in an emergency, finds Nan Spowart

IT SAYS something for the phlegm and equanimity of small business owners that, having risked their all to build a viable enterprise from the ground up, having created employment and having pursued the Holy Grail of growth, they will invite someone in to tell them why they are doing it all wrong.

And pay them for the privilege.

That is the curious role of the non-executive director, a necessity in a public company, but an optional add-on to the board of smaller, owner-managed concerns, whose value lies in boosting the boards' cred and supplying objective criticism of its strategies.

Of course, a parachuted-in non-executive might not take the view that everything in the company was a crock of the proverbial until he (or she) arrived.

Or they might take a look and say that everything in the garden is rosy. But that is not why they are invited to the party.

Small companies will most usually seek non-exec advice when there is something momentous in the wind - a planned acquisition, perhaps, or a sharp acceleration in the growth trajectory, or a management cull.

The justification for asking a non-exec to sit in is that they are typically mature, have credible personal business experience, are financially astute, can offer inexpensive strategic advice and, importantly, can bring with them more introductions than a dating agency.

And although the job description requires an oversight and a critical appraisal of the executive board's strategy and activities, non-execs are also required to be supportive, curious and challenging.

Perhaps there is another reason for small business owners to seek out such well-rounded and mature advice: it's lonely up there, running a private company and shouldering all the responsibility.

It would be only human to appreciate a sounding board and, dare one say it in the hard-headed world of business, a sympathetic ear.

In a public company in these days of rigid corporate governance, the board structure is fairly standardised, with only a few executive directors - Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief operating Officer (COO) - and the rest, including the non-executive chairman, made up of non-execs pulled aboard for their diverse expertise and judgment.

The chairman, indeed, is likened by some wags to a modern airline pilot. In the cockpit there is a computer, a pilot and a dog; the computer flies the plane, the pilot feeds the dog and the dog is there to bite the pilot if he or she touches anything.

The chairman's main role, they say, is to decide if and when to fire the chief executive if things go awry.

In a smaller, private company, however, the structures are more fluid and informal. The days are pretty well gone now of company owners inviting a chum or family friend to be a non-exec, primarily in order to have a lunching companion.

Appointments tend to divide into clear categories: a non-exec chairman who can bring specific insights to the company's direction and strategy; and a non-exec finance director who can take a more holistic approach to managing the money as the company begins to outgrow its fiscal adolescence.

David Watt, executive director of the Institute of Directors, Scotland, said that there are recognised triggers which should make a small business start to seek the services of a non-exec.

"Sometimes," he said, "it can simply be panic - but it should be a rational decision to find someone who can help build the business through advice and support, particularly about strategic direction and the external environment."

He is clear about what an SME owner should look for in a non-exec, and where the search should start. He says: "It is important when seeking this critical ally to be quite clear what you are looking for and why.

"Draw up your own list of requirements and agree it internally before starting the search.

"Then speak to relevant agencies like the Institute of Directors or appropriate head-hunters or advertise on LinkedIn. Crucially, you have to get along with the individual because the personal, as well as the professional, relationship is crucial."

Watt says: "It is reasonable to expect positive help, support, advice and criticism on business direction - and a fund of ideas on how to do things differently and better.

"Given that non-execs are often not paid that much, they should be good value, but it is about what they bring to the business - and profit and progress can be measured to assess what they have added during their term. At least three years is best."

Regarding any warning signs that a non-exec could be wrong for the business, for instance by charging disproportionate fees, he adds: "Fees are variable, but generally they must be cheaper than a consultant - typically around £15,000 per annum, though some directors prefer a daily rate. For this, you get a 24/7, 365-day commitment, so it is quite hard not to get value."

Facts and figures

There are as many as 6,000 non-executive directors active on the boards of the Britain's top 1,000 firms with thousands more in smaller private companies. Non-execs in small companies make between £15,000 and £20,000 a year, according to the Institute of Directors. In listed companies, remuneration can rise to £25,000 to £40,000 and in the top echelons of the FTSE 100 level they take home £40k to £100,000.