There are a number of different scenarios where an independent director might have to be given a position on your board, despite not being part of your existing management team.
Understanding the role of an independent director can help you appreciate how this will impact on your business and what to expect from the process.
Here is a look at the role of an independent director and some suggestions for finding the right person to take up that role in your business.
In general terms, the role of an independent director is about overseeing how the company is managing its responsibilities and whether the business is in compliance with current legislation and fiscal responsibility.
Having a reputable independent director on board can help ensure that the business achieves a good level of corporate credibility and is meeting its current legal obligations.
It is also the case that an independent director will play an active role in verifying that the company’s financial reporting and auditing systems are fit for purpose and the data is accurate.
If the business is experiencing financial difficulties it might be the case that the lender who has financial exposure in the business requires an independent director to be appointed so that they can serve their interests and ensure that you are maintaining compliance with their requirements.
Whether your business is experiencing financial distress or you need a guiding hand to drive the business forward in the right direction the fundamental purpose of an independent director is to provide guidance based on their experience.
A typical scenario would be to appoint an independent director who has a proven track record of success in your industry or has the financial acumen to find a viable solution to your existing problems.
Whatever the underlying reason for appointing an independent director the key qualifying criteria is to find someone with the crucial experience needed to help your business make some positive steps in the right direction.
What often comes with experience is contacts, and the right independent director will probably have a network of people who can provide some of the services or assistance that your business needs at this point in time.
An independent director should be able to add value to your business and provide access to their network of people who have the relevant resources that you have been looking for or the finding options you need, once they have identified the extent of the situation.
It is feasible to find yourself in a situation where you are facing a complex transaction or a challenging trading situation that the existing board of directors does not have the relevant knowledge or experience to deal with these challenges.
The right independent director should be able to confidently handle difficult situations in a calm and assured manner.
If you are tasked with appointing an independent director it would be a good idea to create a checklist of what it is you need help with so that you match your requirements with the relevant skills and experience of someone who could take up the role with aplomb, based on their impressive resume.
There is a big difference between someone challenging your current thinking and decision-making processes in a constructive way and that same person taking a contrary view and appearing obstructive.
The role of an independent director is to provide an opinion that can be substantiated via a reasoned argument and constructive criticism rather than challenge your decisions without substantiating their thinking behind these opinions.
Ideally, you want to appoint an independent director who demonstrates a certain level of empathy, especially if the current mood amongst the board is one of dissent and disagreement.
You can have a great independent director on your board who has all the right credentials and experience needed for the role but those advantages could soon be negated if their communication skills are not great.
Good communication can be defined in a number of ways.
A good example fo this in action would be when an independent director has formulated a plan that addresses the company’s current problems but fails to communicate these ideas successfully.
Never underestimate the power of good communication and when you consider the level of collaboration required in the boardroom to get things done quickly and efficiently it should become abundantly clear that you should seek out an independent director who possesses the necessary good communication skills.
It is probably a fair observation to suggest that a typical boardroom will contain a number of individuals who all bring something unique to the business but might share common goals and beliefs as their fellow directors.
One of the key benefits attached to having an independent director is that they will introduce a different and diverse perspective that doesn’t conform to the corporate view that might currently exist.
These are some of the key aspects of appointing an independent director and it is important to appreciate that a typical director in this role will not normally get involved the day-to-day basics of running the business.
Their role is more defined and streamlined than that. Key areas where an independent director would be deployed include setting new corporate policies and developing plans that map out how the business is going to trade now and in the future.
An independent director can also be expected to oversee whether the current board of directors and key stakeholders are operating the business in accordance with corporate governance guidelines and its fiscal responsibilities.
When you think about it, the clue is in the name, and the main point to bear in mind is that when you appoint an independent director they should behave in a way that is clearly independent and that means they should not demonstrate undue leniency towards board members if corporate compliance is going to be achieved.