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Board independence in focus.

Dubai The representation of independent non-executive directors on the boards of UAE-based public joint stock companies has failed, to a substantial degree, to comply with the requirements of the UAE Corporate Governance Code passed in April 2010.

However, hopes abound that authorities will doggedly enforce the requirement that at least 30 per cent of listed company board members be independent directors. Such implementation will improve corporate disclosure practices.

When that happens, the corporate world will likely see positions in the field of independent directorship. Taking up a non-executive director's post has its own set of requirements, challenges and rewards.

John Martin St Valery, a partner at NxD-global, a company that brings together directors with companies, is seeing particular demand among private equity houses as the government moves to encourage more Initial Public Offerings (IPO) in an effort to boost liquidity and make the country more attractive to foreign investors. Also, increasingly, smart small and medium enterprises (SMEs) are also recognising the value that a non-executive director can have in fast-tracking their businesses.

Talent Partners, a global executive search practice, with offices in Dubai and the region, has been approached by an increasing number of clients in the last two years to fill up positions for independent non-executive directors on their boards, according to group managing director Andrew McNeilis. McNellis is a non-executive director on a couple of company boards in Australia, where Talent2 is listed.

Wealth of experience

"Our clients are either looking for non-executives who bring a wealth of corporate experience EoAC" or a specific technical depth of knowledge that is invaluable to a specific sector," McNeilis said.

Who is a non-executive director? A non-executive director is defined in the UK Cadbury Report 1992 as a person who "apart from director's fees and shareholdings are independent of` the management and free from any other business relationships which could materially interfere with the exercise of independent judgment."

And according to St Valery, non-executive directors are primarily responsible for looking after shareholder value in all aspects of the business EoAC" financial and organisational.

They assess risk, inform company strategy and should be totally independent of the board or shareholders.

The non-executive director should be willing to walk away from the company if they do not believe that their voice is being heard. But crucially, the independence, objectivity and business acumen of non-executive directors complement the detailed knowledge and experience of executive management, St Valery said. The independence of a non-executive director will truly benefit family-owned businesses, he believes.

"One of the key roles of a non-executive director is to challenge the board, a task which is difficult for board members who have family ties or are connected socially. The true independence of a non-executive director is crucial here," St Valery said.

As for what makes a successful non-executive director, St Valery says the person should possess a balance of expertise, proven experience and local market knowledge and connections.

"We would not recommend a non-executive director who had great expertise but little locally relevant market knowledge or contacts, particularly in a region like the Middle East," he said.

However, requirements can also vary across industries.

For example, St Valery points out, an executive in the fast moving technology industry might be younger and have accumulated fewer years of experience, but possess the right mix of expertise and relevant experience to make him or her the perfect candidate for a non-executive position.

"The skills that financial professionals and lawyers bring to a board are often in demand," St Valery says.

"However, it really depends on the needs of the individual business."

While it could very well be for some people a conscious option, in which one can build formidable reputation as a non-executive director after having had a strong career as a previous full-time director, McNeilis also points out that it could be appealing also to a person who has peaked in their own career.

Opportunity

Stuart Walker, a partner at law firm Afridi & Angell, also believes playing the role of a non-executive director provides opportunities for learning about new industries and enhances networking opportunities.

As for compensation, it varies on the level of expertise and experience of the candidate as well as the requirements of the company.

"It is worth noting however, that the non-executive director is not a salaried employee of the company, they do not receive bonuses or company perks," he said. "They are paid a fee for their services to the board. A truly independent non-executive director should not be reliant on the fee for that position as their EoACAymain' earnings."

On the liability of a non-executive director, the UAE code does not stipulate anything clearly, but it is widely accepted that this role carries the same accountability as an executive director, says St. Valery.

Shareholder value a priority

Non-executive directors are primarily responsible for looking after shareholder value in all aspects of the business EoAC" financial and organisational. They assess risk, inform company strategy and should be totally independent of the board or shareholders.

n You will keep your business brain and decision-making capability superbly honed if you take the role seriously

n It can be immensely satisfying when you see that your previous experience and knowledge truly helps a company or organisation achieve their most optimistic objectives EoAC" there is something wonderful about being your advice being listened to and in some way helping to solve a problem or maximise an opportunity

n Provides a career of tremendous variety without getting bogged down in the drudgery of the operational detail and time that goes into being a full-time employee or leader

n With responsibility comes great opportunity to learn and develop as an executive, and to be exposed to new and challenging situations.

Source: Andrew McNeilis, Talent2 Partners and John Martin St. Valery, NxD-global.

Rewards

n Role of non-executive director's (NED) is time consuming: Never under-estimate how much informal time the owner/board might demand of you beyond the board meetings per year that you agree to.

n Avoid fixture congestion: Ensure you know your capacity and do not over stretch yourself or be greedy. Better to agree to one or two NED roles and execute your duties to a very high standard than do an average job. Strong effective non-executive directors will build a reputation so don't be tempted to dilute your reputation for a quick buck

n Can you mix friendship with career? A good NED will tell a board or owner what they must and need to hear EoAC" not what they want to hear. Are you really willing to burn a friendship for the sake of some "part-time income?" Think long and hard about that before you commit to any NED that crosses such a boundary

n Are you capable? It is flattering to be asked to become an NED. However, do you have the necessary skills? Do you understand governance, remuneration, technical aspects, company law and such other issues? There are many courses you can take. However, don't get into something that you know you cannot add value to.

n Need to be objective always: Never accept any non-executive directorship invitation that starts with a conversation such as "You won't have to do anything," or "All I want you to be is my man on the board". Just as you cannot be slightly pregnant, you cannot be mostly objective. EoAC" Source: Andrew McNeilis, Talent2 Partners

challenges

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Publication:Gulf News (United Arab Emirates)
Date:Jul 9, 2011
Words:1250
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