Press Room
Non-exec experience rises on FTSE 350 boards
FTSE 350 non-executive directors (NEDs) now have greater levels
of direct sector experience and are more numerous than in 2003, a
new study undertaken by business and financial advisers Grant
Thornton for the Financial Reporting Council (FRC) has
revealed.
The findings suggest that the ability of NEDs to oversee their
companies' strategies, challenges and risks has increased,
improving their overall effectiveness and the balance of boards in
the UK's largest companies.
Across the 12 sectors* examined, 30% of non-executive directors
(NEDs) now have direct experience of working in the same sectors as
the companies on whose boards they sit with 30-35% direct sector
experience being the norm. Those with wider 'industry' experience
-comprising a number of related sectors - rose from 53% to
59%.
Direct experience among NEDs in the five banks within the FTSE 350
rose significantly from just 6% in 2003 to 23% in 2008 reflecting
the specialist nature of the sector and the limited availability
of NEDs who have not previously sat on the same company's
board as an executive director, thereby disqualifying them as
'independent'.
However, relevant wider 'financial industry' experience among bank
sector NEDs doubled from 31% to 60% over the same period to come
into line with the average of 59% across the FTSE 350.
At 81%, the level of direct sector experience is highest among
financial services companies, a rise from 41% in 2003, with broader
industry experience increasing from 85% to 98%. The lowest levels
of current industry experience were found in the electricity sector
(40%), oil and gas producers 35% and gas, water and multi-utilities
sector (23%).
Simon Lowe, Head of Business Risk Services at Grant Thornton
commented: "The level of experience of Non-executive Directors in
the FTSE 350 is undoubtedly growing. Combined with their growing
number, it is clear that they are better positioned to contribute
to the strategic debates and provide the quality of challenge
that is essential if a Board is to function effectively.
"Of course, there are many factors affecting the operation of
individual company boards but it is important that NEDs have
sufficient direct knowledge as well as broad experience to act as
effective counterpoints. In my experience, the most effective
Boards in large listed companies are those with a balance of
sector, listed and wider commercial experience."
Changing Board Profiles
The influence of NEDs is increasing as the balance on the board
continues to shift in favour of the non-executive directors. The
average number of non-executive roles has increased from 5.0 to 5.4
while the average number of executives has fallen from 4.4 to 3.6,
a ratio of 1 to 1.5 (excluding the Chairman).
The average board size including the chairman in our review was
10.0. The largest boards were in banking (14.8), oil & gas
producers (11.7) and oil equipment, services & distribution
(11.5). The smallest boards were in travel & leisure (9.6),
support services (9.0) and general retailers (8.3).
On average banks have seen significant shrinkage in board sizes
from 18.2 to 14.8. This is due to a reduction in the number of
executives on the board from an average of 8.4 to 4.2 which has
produced the sector with the highest ratio of executives to
non-executives at 1 to 2.3.
Lowe commented: "This greater proportion of non-executives on
boards should enhance their ability to bring a range of
perspectives and experiences to bear when considering both
strategic and operational challenges, and the effectiveness of the
company's identification of and responses to the risks it faces.
The challenge does however remain in translating the change in
board balance into having greater influence on the board."