Shortage of NEDs despite rising rewards

2005

Businesses in Britain face a growing shortage of non-executive directors as the risk, responsibilities and time commitments of the job deter suitable candidates.

Research by Deloitte has found that governance changes have put pressure on individuals to hold fewer non-executive positions. Together with the requirement that 50 per cent of the board be made up of independent non-executive directors, the demand for high quality individuals is increasing.

Carol Arrowsmith, head of remuneration at Deloitte, said: "76 per cent of companies have changed the composition of the board in the past twelve months and there are now 50 per cent more non-executives than executive directors, compared to 40 per cent more last year."

But she added that governance changes have increased the responsibilities and time commitment of non-executive directors, leaving many people reluctant to take on the increased risks involved.

As a result, non-executive directors' fees have increased by 10 per cent, a sharp rise compared with 5.8 per cent last year.

The median fees for non-executive directors now range from £32,500 in the smallest FTSE companies to £66,500 in the largest.

The report also revealed that 16 per cent of FTSE 100 companies and 39 per cent of those in the FTSE 250 have yet the meet the requirement for half their boards to be made up of independent NEDs.

To meet these obligations, will require the appointment of at least 145 new directors over the next year.

But despite the shortfall, the pool from which these NEDs are drawn remains a small one.

The report found that FTSE 350 companies do not appear to be widening the search for suitable candidates and that the majority of appointments are still likely to be from other large UK public companies.

Over the past year, the proportion of female members on boards of FTSE companies has increased by a mere one per cent to nine per cent. Over the same period, there has only been a slight increase in the number of non-UK nationals on boards of UK companies, from 14 per cent last year to 16 per cent this year.

"Companies may need to look further afield to recruit, as many companies still need to appoint more non-executive directors to fulfil the Combined Code requirements," Arrowsmith said.

But she added that despite these recruitment difficulties, a growing number of companies have moved a long way towards compliance with the new governance requirements.

"Some have gone further and demonstrated that these processes are embedded in the organisation and are adding value rather than being a box ticking exercise.

"We believe that over the next twelve months more companies will recognise that the framework provided by the Combined Code can and does improve the competence and effectiveness of boards," she said.