How to Conduct a Board Skills Audit Before Hiring a Non-Executive Director

Welcome to the NED Capital Podcast, where we explore the issues that matter to chairs, directors, investors and business owners when it comes to building stronger, more effective boards.

Today, we’re looking at a question that is surprisingly often overlooked when a company decides it needs to appoint a Non-Executive Director:

What does your board actually need?

It sounds obvious, but many NED searches begin with a much less precise brief.

A company decides it needs a NED and starts looking for someone with “good governance experience”, “strong commercial experience” or perhaps a successful former CEO.

But that approach can produce a very impressive candidate who isn't necessarily the right candidate.

Before starting a NED search, boards should ideally conduct a board skills audit.

A board skills audit is essentially a structured assessment of the experience, expertise and capabilities already present around the board table. The objective is to identify the gaps that genuinely matter.

And that gap should then determine the NED specification.

For example, imagine a growing business preparing for an acquisition. The board may already have substantial general management experience, but perhaps nobody has significant M&A experience.

Alternatively, an FCA-regulated business might have strong commercial and financial expertise but lack somebody with the specific regulatory and governance experience required for its next stage of development.

A PE-backed company may need a NED who understands private equity governance, investor reporting and value creation rather than simply somebody who has previously held a senior executive position.

https://www.nedcapital.co.uk/non-executive-director-recruitment/

https://www.nedcapital.co.uk/how-to-conduct-a-board-skills-audit-before-hiring-a-ned/

So the first question isn't:

“Who can we find?”

It is:

“What capability are we missing?”

That distinction can completely change the quality of the search.

A useful board skills audit should look at several areas.

First, financial expertise.

Does the board have somebody who can properly challenge financial assumptions, understand cash flow, assess investment decisions and contribute effectively to discussions around acquisitions or funding?

Second, sector expertise.

Does the board understand the markets in which the business operates and the markets it intends to enter?

Third, strategic experience.

Does the board contain people who have actually dealt with the next stage of growth the company is approaching?

Fourth, governance.

Does the board have sufficient experience of governance, risk, remuneration, audit and board effectiveness?

And fifth, independence and challenge.

Perhaps the most important question is whether the board has somebody who can provide genuinely independent challenge to the executive team and, where relevant, to investors or shareholders.

This is particularly important because a NED isn't simply another adviser.

A good NED should bring judgement, perspective and constructive challenge to the board.

The right candidate therefore needs to complement the existing board rather than simply replicate it.

One of the most common mistakes we see in NED recruitment is appointing another person with essentially the same background as everybody else around the table.

If the board already contains several former CEOs from the same sector, adding another former CEO from the same sector may feel reassuring.

But it may not address the actual strategic gap.

Sometimes the most valuable appointment is somebody who brings a different perspective.

The next question is independence.

Independence shouldn't simply be treated as a box to tick at the end of the recruitment process.

The board should consider potential conflicts and relationships when defining the brief.

For listed businesses, the relevant governance requirements need to be considered. For PE-backed companies, the relationship between the NED, management and the investor group needs careful consideration. For charities and other organisations, different governance requirements may apply.

The time commitment also needs to be realistic.

A NED role involving three board meetings a year is very different from a PE-backed business requiring monthly board reporting, investor presentations and active committee involvement.

If the time commitment isn't properly understood at the beginning, the company may end up attracting candidates who aren't actually available for the role.

So once the board skills audit has identified the gap, the next stage is to turn that into a precise NED brief.

Instead of saying:

“We need an experienced NED.”

You might say:

“We need an independent director with experience of scaling a technology business from £30 million to £100 million, significant M&A experience and a strong understanding of institutional investors.”

That is a much more useful recruitment brief.

It gives the search a clear direction.

At NED Capital, this diagnostic approach forms the foundation of our recruitment process.

We work with chairs and chief executives to understand the existing board composition, identify the specific skills gap, consider governance and independence requirements and then build the candidate profile around those findings.

Only then do we begin the market research.

And that market research is important.

NED recruitment isn't the same as recruiting for a conventional executive position. The strongest candidates aren't necessarily looking at job boards. Many are already sitting on boards, running businesses, advising investors or building portfolio careers.

That means a successful NED search often requires direct market research and targeted approaches rather than simply waiting for applications.

Candidates then need to be assessed against the actual brief.

Do they have the right experience?

Can they provide independent challenge?

Do they understand the governance environment?

Are they genuinely available?

Are there conflicts?

And perhaps most importantly, will they add something to this particular board?

At NED Capital, every candidate presented on a shortlist is interviewed against the specific requirements of the mandate, with independence, board experience, sector knowledge, availability and governance familiarity all considered.

The result should be a shortlist based on the board's needs rather than simply a collection of impressive CVs.

If you're considering appointing a Non-Executive Director, I would therefore suggest starting with three questions.

What does our board already have?

What does our board genuinely lack?

And:

What will the business need from its board over the next three to five years?

Those three questions can transform a NED recruitment exercise.

If you'd like to explore this in more detail, we've produced a guide on How to Conduct a Board Skills Audit Before Hiring a NED, which takes you through the thinking behind this process.

And if you're actively considering a NED appointment, you can also visit the NED Capital Non-Executive Director Recruitment page to see how we approach board-level searches.

NED recruitment is ultimately about much more than finding an impressive individual.

It's about building a board that has the collective experience, independence, judgement and challenge required for the organisation's next stage.

The right NED doesn't simply fill a seat around the table.

They can change the quality of the conversation around that table.

Thank you for listening to the NED Capital Podcast. If you're a chair, CEO, investor or business owner considering a Non-Executive Director appointment, we'd be very happy to have a confidential conversation about what your board actually needs.