The Risks and Rewards Associated with Becoming a NED

balance risks rewards becoming NED

There are a number of experienced non-executives who, when offered the opportunity to join a board, their first response is a definite no. In their minds, the risks – reputationally, financially and personally – are just too high. They need these risks mitigated prior to even contemplating taking up a directorship. With this in mind, why would anyone want to be a non-executive director?

Studies have shown that people that have Board Directorships in addition to an executive role are: more appointable, earn more, are unemployed less and have better networks and connections. They are also able to future proof their careers better, have more successful retirements and weather unexpected career changes strongly.

There are some big risks for a NED

Take for example the case of Centro Properties Group; here the Federal Court’s verdict against eight directors and former executives meant that ASIC imposed financial penalties upon the directors, as well as their future disqualification from managing corporations.

In addition to the financial penalties they incurred, the reputation of these directors has been damaged to such a degree, that maintaining a portfolio career will be near impossible. Furthermore, each time they are in the market for a new role, they will have to explain their past actions and try, perhaps in vain, to explain why they are an acceptable risk for the new organisation to take, should they employ them. This is not a pleasant position to be in!

The findings of the Centro case were widely reported as having serious implications for company directors – there was even talk of boardrooms emptying overnight. Today, with boardrooms still well populated, most observers agree the case was less about adding to directors’ responsibilities than reminding them of the risks they were taking and their liabilities.

Do you understand the risks associated with a board directorship?

The question remains whether you understand the risks associated with a board directorship and if you are capable of mitigating against them.

Some of the reasons people baulk at becoming a Board Director include:

  1. The Financial, Professional & Reputational risks associated with directorships. The 8 board members of Centro are a case in point but there are plenty of other directors who have suffered significantly due to their liability as a director.I have interviewed candidates who have had this sort of reputational issue to deal with. In each case the recruiting organisation thought the risk was so high – both professionally and reputationally – that they always appointed a competing candidate. Over time this had an incredibly depressing effect on the candidate and set their career back decades!
  2. The hourly rate is dreadful; when you do the sums, the hourly rate for most board roles often does not make up for the risks you will take. In other cases, if unpaid, you will find yourself paying to take on these risks.
  3. Of course, being part of a board, by definition, means that you are not the decision maker, so you are reliant on the quality of other board members and the Chair – things you don’t have control over. Again, this adds to the risk you are undertaking.
  4. For many of you who already have busy executive and personal lives, taking on a board role means time out of the office or away from your family. This should be factored in to any desire to take a board position. I can speak from experience, that even 1 day a month out of the office can have significant ramifications on your effectiveness and time management.
  5. Did I mention the financial, reputational and personal risks? They are considerable.

It’s not just all risk, there are some rewards

Whilst the risks are considerable for most, the rewards of taking on a board directorship far outweigh the risks. It will come as no surprise that I am an active supporter for people taking up board positions. I think the rewards are tremendous and include:

  1. Understanding how your own board works. Every board is different but as an executive, it is critical to understand where the levers are that will influence the decision making of your board. Sitting on a board yourself will give you an insight into the dynamics of board decision making and relationships.
  2. As a recruiter, one of the questions I ask aspiring executives is to evidence their strategic experience. The key word here is evidence. Many find this difficult to do. However, those who sit on boards, have a ready-made response to this question that articulates their ability to work strategically and their ability to work with senior individuals.  This is a great thing to be able to do.  Those without board experience can struggle to evidence their ability to work at this level and can suffer in comparison to those that can.
  3. Other than getting to know people playing sport or in social groups, I firmly believe that there is no better way to get to know people than sitting around a board table, discussing issues that everyone is passionate about.
  4. Relationships formed around a board table can often turn into new business. They sometimes develop into personal relationships, which can lead to new business opportunities and friendships that can propel your career or social life into a new direction.
  5. One of the things I hear most from people when I ask them why they want to join a board, is the phrase ‘I want to give back’. Each time I hear it, it sounds clichéd, but it is an accurate statement that many people on boards instinctively understand.
  6. You can get paid. I have written before about exactly how much you can expect to be remunerated sitting on a board but for many, if paid, this is a nice way to add to your income or see you through retirement. It should be noted here that even unremunerated/voluntary board roles can have financial benefits. I have never been paid for my board work but I have always received some sort of financial reward through the relationships and experience I have gained as a non-executive director.
  7. Finally, many people seek board experience as a fall back or preparation for post-executive life. Having been through the GFC in the UK as a recruiter (not much use for them in a GFC) I can put my hand on my heart and tell you that it was because of my board experience that I was never unemployed in that period. In fact, my salary and professional experience increased!

If you want to know more about how to gain a board appointment then consider coming along to one of our Board Search Breakfasts.

About the Author

David Schwarz is CEO & Founder of Board Direction – Australia’s leading board advertising and non-executive career support firm. He has over a decade of experience of putting people on boards as an international headhunter and a non-executive recruiter and has interviewed over one thousand non-executives and placed hundreds into some of the most significant public, private and NFP roles in the world. He has been described as Australia’s leading board recruitment expert, is a published author, a regular speaker on the board appointment process and runs Board Search Masterclasses across Australia. He is one of Australia’s Top 10 LinkedIn users with over 20,000 connections. Email: [email protected]