Types of directors

For SMEs there are three types of directors available to them – the executive director, the non-executive director, and the independent director. A good board will aim to have a mixture of these three types as each brings a different element to the table.

Executive directors

Executive directors have a dual role as employees of the company and as directors. As directors they:

  • have responsibilities, but must retain a degree of independence from their executive role
  • should be appointed as individuals, and not because of any position they hold within the company
  • must always be alert to the potential for conflicts between their management interests and their duties as a director.

An executive director brings an insider’s perspective to the table which can be very valuable when discussing the operations of a company.

"The people you bring on board will represent your company, share your vision, and complement your weaknesses. (This is why you should not get people who resemble you.) They should have different skills to increase the "human wealth" of the company."
Gilles Babinet, serial entrepreneur

Non-executive directors

These directors bring an outside perspective to the table and often a wealth of knowledge and experience. A non-executive director may be representing a major shareholder but an independent director will generally have no other links with the company other than sitting on the board. Non-executive directors' principal role is to provide independent judgement. This includes:

  • outside experience and objectivity on all issues which come before the board
  • understanding detailed knowledge of the company's business activities and on-going performance, so they can make informed decisions
  • recognising the division between the board and management.

The boundary often gets blurred in SMEs. For example, a non-executive director may be appointed to fill a gap in knowledge and expertise, and end up assisting management in that area.

Independent directors

To gain true separation between management and governance it makes sense to include independent board members. Some owners can feel threatened by this independence, but in the end their outside thinking can enable the business to grow and develop valuable long-term strategy.

Characteristics of the best independent directors

  • Business experience – a successful business person will have been 'in the firing line', experiencing and learning from real life experience rather than seminars and books. They will most likely have:
    • experienced adversity, risk and possibly had to fight for the survival of their business
    • scars and ‘war stories’ to help you avoid making similar mistakes.
  • All-round independence – an independent director will be someone who will not compromise loyalty. They are independent in every way:
    • intellectually
    • financially
    • politically.

Silent and absent directors

A good director is an active one, quiet ones are wasting valuable space, time, and resources. In many SMEs formed in partnership, it is common for one director take the lead in the running of the business, while the other is the silent partner. Do the business a favour and pull in people with skills and experience, who have a voice and something to add value to the business.


The benefits of having one or more independent directors

For SMEs, there are several benefits from having one or more independent directors:

  • they bring an objective viewpoint to the board
  • they are unlikely to have any family or majority ownership ties to the business
  • they can cast a critical eye over the business without preconception or prejudice
  • they are also able to act in the capacity of counsellor, sounding board and devil's advocate
  • they bring a one-off business knowledge and experience in many areas
  • many SMEs tend to operate in a vacuum without looking at outside forces
  • outside directors introduce a fresh, and usually innovative, perspective
  • they may compensate in some of the key areas where management may be weak
  • the outside director may act a bit like a consultant
  • bring input and the ability to assist with objectivity.