Tim Ingram: Lawyers can be the very best Non-Executives
Contrary to what Chairs may think, people who have been lawyers are very well suited to being non-executives.
Tim was a banker for many years, then ran an investment company, but he’s also been on the board of 15 listed companies over the last 30 years, as an exec, non-exec, chairman and SID. The very best non-exec he’s ever observed was a lawyer, from Linklaters, Charles Allen-Jones.
It is important for potential non-executives to understand what a board does. To be clear they don’t originate strategy or run the company. This is management’s role. Big decisions always come from management. Boards have to approve them, and it is extremely unusual for a board to reject them, and if they do, it is normally the route to the exit door for the executive. This is not because boards have no real role. Instead it is because plenty of discussions will have been held on a particular topic inside and outside the boardroom before important decisions are finally taken. So, it is not problematic when a board simply agrees a proposal or modifies it only very slightly.
Non-execs are there to keep company and management out of trouble. They oversee it and make sure it doesn’t do the wrong things.
When boards are being composed, generally you need one director with suitable finance experience and someone else with deep industry experience in the same area as the company. But there is room for more industry experience than this. It is important that non-execs can act constructively and cohesively. No one wants to encourage dysfunction.
The role of the chairman is to work very closely with the CEO so that the chair is sufficiently briefed about any major decisions that have to be taken and is confident that the other non-execs will approve the CEO’s proposals. If a decision were to be turned down at the board, then that would also be seen as the chair’s failure.
If you don’t like the idea of being a NED then don’t do it. But if you do like the idea then you should absolutely go for it as Tim reiterated that he thinks lawyers make very good NEDs for the following reasons (Tim’s 7 points):
- Every legal firm is a capitalist business – not a political or government entity. You understand what business is about and operate daily in the commercial world.
- How a board works is through constructive challenge of management in a non-confrontational way. That’s exactly how you challenge and advise your clients. It is in lawyers’ DNA.
One example – a major FTSE 250 company with 2 new non-execs. One lawyer and one former CEO. The CEO could not adapt to the constructive, rather than dictatorial, style of the board. The lawyer succeeded Tim Ingram as SID as she was really good. Keeping management on the straight and narrow is an art, and she knew how to do it.
- Lawyers are there to see the company avoids mistakes. Lawyers spend their time clearing up mistakes and organising things to avoid mistakes. People from an executive world do not see their job as avoiding mistakes, but rather as making things happen. Very different.
- Board papers. They can run to 1000 pages. A lawyer can grasp key points quickly. Management often don’t have this skill. Often a non-exec has to rely on management telling him what’s important but useful.
- Industry knowledge. The chair will want sector knowledge and many lawyers have a legal specialism with detailed knowledge of the company’s arena. Though legal knowledge itself isn’t so often useful, there are times when it is. For instance, at UK Wind, Tim frequently does new share issues. It is not unhelpful to have a lawyer on the board who can assure the others that what the bankers etc are offering is ‘quite normal’ and ‘okay’.
- Corporate governance is increasingly important. It’s all about keeping companies out of trouble. It’s second nature to someone with a legal background. It’s much harder to grasp for other first time non-execs.
- If you follow a NED career you might be on several boards in completely different arenas. It can be quite strange for someone who’s only ever worked in one area, but this doesn’t faze a lawyer who most likely will have dealt with lots of different businesses at the same time in their day job.
Diversity in the board room can be aided by having a lawyer there, a legal mind and background. Diversity is much more than gender.
How do non-execs get appointed?
Not simply by knowing people anymore. When a new non-exec is being recruited [for a listed company] it MUST be done through a headhunter. You need to proactively go to headhunters – don’t be reticent – they need the raw material and they don’t generally go on desktop research, just from their own lists. Get on those lists. The chair gives the headhunter a list of the type of things he/she wants. The headhunter produces a longlist, which may include a lawyer, and will then chat through each potential candidate with the chair and what they can bring to the role. So, if you can get the “Tim’s 7 points” across to the headhunter when you meet them, the headhunter is more able to relay to those competencies to the chair. You need to keep going back to the headhunters and repeating that process. That’s the same for every individual, not just lawyers. You have to put yourself in the headhunter’s mind.
The younger a headhunter, the more likely they are to be more worldly and able to see the lawyer’s strengths. It helps if you can get an introduction.
The longlist has to be people that the headhunter believes will want to be put forward – so if they don’t know you are currently looking they won’t put you on a longlist.
As a charity non-exec, remember that the people you are overseeing have very different motivations from the people you see on the corporate side. E.g. a charity CEO has been known to ask for a salary cut. But apart from that, there are remarkably few differences in the way they operate. The 7 features are equally applicable. They still need your expertise and they still need a strategy. A charity is a form of business, it can’t go on making deficits if it is to serve its purpose. There has to be a certain commerciality to how it is run, which may be lost on former civil servants or politicians.
The average life of a former CE on a board can be short. Lawyers are rarely tapped on the shoulder, once on the board.
It is important to get Tim’s 7 points across. You need to underplay and hardly mention the pure legal experience – it’s hardly worth anything. It’s the ability to get the point across in a constructive manner that will count.
It is important as a chairman to have SOMEONE on the board who scan reads all the 1000 pages of the board papers. It is a useful skill. Especially for regulated businesses.
One success of Tim’s was getting the PRA to change their views on whether all non-execs should have satisfactory knowledge of the banking and financial environment – he pointed out the need for diverse views to avoid group think.
An audit chair is unlikely to be a lawyer. A specific need for business experience is unlikely to be met by a lawyer. The downside could be that lawyers don’t understand the business at all – services businesses are easier for lawyers than e.g. a car business. But you can overcome this by your own experiences.
Chair of Rem Com – lawyers well suited to that role. The key role of that committee is to ensure there is fair division of spoils between owners and management, with lots of advice from Rem consultants. Quite a lot results in changes to the employment contracts. Chair of Rem has to do that work. There is now a lot more scrutiny of executive pay in the charity sector too.
The SID has one duty. To make sure the relationship between the chairman and chief executive works well. If another non-exec has a concern, then they should have a word with the SID to raise the issue.
If you do decide to pursue a NED career, don’t expect it to happen straightway. Keep at it. Every six months or so, do the rounds of headhunters again. Keep yourself in their minds. Educate them on everything lawyers can bring to a board which business executives cannot.