June 9, 2022 Brushing up on Cyber, IT, and ESG
Should we expect a company director, particularly a non-executive director (NED) to be a ‘fount of all knowledge?’ Well, probably not. After all, a balanced board will consist of experts in a number of areas and it is the interplay between those individuals which can result in decisions which are in the best interest of the company.
However, meaningful debate can only take place when individuals have sufficient knowledge to enable them to question and interpret the information provided. This is where non-executive directors in particular can be so beneficial for a company, bringing in expertise which is underpinned by real-world experience.
Nevertheless, no matter how many organisations a non-executive director may have worked for, in an ever changing world there will always be a need for continuing development to ensure that advice given and decisions made are based on firm and up-to-date foundations.
In general boards manage this balance of expertise well. However, according to a survey by the Quoted Companies Alliance (QCA), there are a few areas which may require further work. The QCA report surveyed non-executive directors in small and mid-sized companies; looking at hours and salaries, as well as expertise, knowledge and skills. When asked about the areas in which boards might lack expertise, less than ten percent of responders highlighted areas such as risk management, finance or regulation. Perhaps worryingly though 60% identified a lack of skill in cyber and IT, whilst 34% felt they were lacking in ESG knowledge.
The QCA speculates that the average age of non-executive directors (60) may partly be a contributory factor in the shortage of IT skills identified. But this shortfall could also be as a result of IT tending to be more of a specialist area. The report also raises concerns about the potential for small and mid cap companies to fall behind the environmental agenda in view of a lack of ESG skills.
On a positive note, the report reveals that the recruitment of non-executive directors is moving away from relying on personal recommendations; with head-hunters and search firms being used increasingly frequently. This, the QCA say, should help to improve diversity, in particular by removing ‘implicit or other types of bias that impede diversity.’ In fact the report notes an improvement over the last year in gender diversity across small and mid cap companies but it also highlights the need for further improvements in the area of ethnic diversity.
