Digital skills growing factor behind non-executive director appointments

Digital is increasingly on the agenda of FSTE350 companies as new technologies and consumer behaviour transform business models, back- and front-offices. In a bid to capitalise on the potential of digital, and oversee the execution of technology-led initiatives, companies are increasingly onboarding digital skills onto their boards.

The types of expertise required for non-executive board positions at FTSE350 companies continues to evolve in the face of a challenging business environment, with increasing focus on tightening risk management procedures, rewriting of corporate governance, complying with stiffer regulation, increased public scrutiny and a fleeting economic recovery. Incoming Non-Executives Directors (NEDs) face a storm of challenges. The selection of NEDs is also changing in light of requirements, affect the selection of non-executive directors across the UK’s top publically traded companies, including gender diversity and increased digital agendas.

In a new report from the Korn Ferry, the human capital advisory firm tracks the 2015 class of non-executive directors appointed to FTSE350 boards. The report is developed from a survey of new NEDs and in-depth interviews, as well as builds on previous analysis dating back to 2007. 

Driving diversity and technical competencies

One area that has seen considerable variation between 2007 and 2015 is the number of women appointed to NED position on boards. In 2007 89% of newly joined NEDs were men. In the intervening years considerable pressure was placed on companies and investors to expand the role of women in key decision making positions – one such effort was the Lord Davies report. The pressure had some effect, and is partly attributed to boosting female appointees in 2012 to 47% of that year's class. In the years that followed, even with additional reports coming out, female NED appointee levels has hovered around the 2007-2014 average of 31%. 

While the issue of diversity continues to simmer, the issue of technical and digital competencies for the role is on the rise. Digitalisation is continuing to affect a wide range of functional areas across businesses, and, in some instances, radically transforming them. Aside from digital transformations, which can quickly become costly mistakes without keen oversight, businesses must now too contend with new threats and risks related to cybercrime and compliance to data protection standards. 

In the face of these changes, more focus is being placed on picking up NEDs with a strong suite of experience and training in technology, something which has filtered through to selection committees. Digital appointees accounted for 17.9% of all appointees in 2015, up from 7.7% the year previous and well above the 6% average between 2007 and 2014. 

Personal NED commitments

Besides general trends in changes to the NED class makeup across recent years, the survey also sought to identify what factors did the 2015 NED appointees consider as reasons for taking a NED role on a FTSE350 board. The top ranked reason was their respective desire to leverage their background to ‘add value from lessons learned in by executive career’, at 41% of respondents, followed by ‘to undertake a plural career and build an NED portfolio’, cited by 23%. A further 21% said that they were looking to ‘broaden their understanding of business & governance’, while 7% were seeking to ‘broaden their network’.

Respondents were also asked what attracted them to their specific FTSE350 role. The 'ability to contribute and add value' again featured strongly (78%), followed by 'alignment with the industry the company operates in' (53%). The next factor of importance cited by respondents is that they can 'have a hand in supporting the company deal with the challenges it currently faces', while the 'reputation of the company' was the third key driver.

The reputation of the board and its individual members too factored into many respondents’ reasons for joining a particular board, including ‘Reputation of the Board & Chairman’ cited by 33%, ‘Chemistry with the Chairman’ cited by 28%, and ‘Established relationships with Board Member(s) & Chairman’ as cited by 15%. Very few of the respondents, at 3%, said that they became a NED at on the respective board for the compensation on offer.

Respondents were also asked to identify the factors that were most helpful to their successful ascension to a NED role. A professional search firm leading the process was cited by 35% of respondents as helpful, followed by previous NED experience (cited by 21%). A number (20%) of respondents access the role through their broader personal network, while 13% cited a previous relationship with the board/chairman.

Richard Emerton, the firm’s Managing Partner for Board and CEO services, Europe, the Middle East, and Africa, remarks, “Our study finds that the role of the non-executive director has grown in importance, as have the demands on the time, skills, experience, and capacities of these organizational leaders. This is an elite group, with great and growing responsibility.”