Last month saw the launch of global executive search specialist RSA's new register of non-executive directors (NEDs), the first such register dedicated wholly to the life sciences. The new register aims to identify independent and experienced non-executives and bring them together in a community that facilitates networking and places qualified individuals into board vacancies with life sciences companies.
We spoke to Nick Stephens, CEO of RSA, about the evolution of the life sciences NED register, and why we need it now.
PEE: How did the idea of a register of non-executive directors (NEDs) come about?
NS: Having worked increasingly with venture capitalists (VCs) from lots of new businesses across the world, and seeing how the global financial crisis has hit early-stage biotech harder than most businesses, two things struck me. First is that the pool of non-executive directors is unhealthily small; there's a small number of people acting as non-exec in a very large number of businesses. If you accept the premise that non-executive directors (NEDs) are there to protect the shareholders interests, then this adds up to a much greater potential for conflicts of interest.
Secondly, over the last 13 years compliance legislation has made the role of a NED much more professional, but staff turnover has not recognised this. We didn't want to allow that status quo to continue; we felt we could add value to businesses and further 'professionalise' non-executive directorships by creating this register.
Why do we need a register of NEDs that is specifically life
sciences focused, and how will you find candidates for it?
There are unique challenges in life sciences, and any business will gain more value from NEDs with specific industry experience. They can ask the simple questions that can be the hardest to answer; they understand 'level of science' required. We now have a maturing biotech/diagnostics environment; in the early nineties, lots of people came out of Big Pharma and brought their skills to early-phase companies. Enough time has now elapsed for some of those people to have proved their skills in the boardroom, to have developed as effective board executives. These are the people that can now, in the role of non-executive director, bring value to other start-up companies.
What are the benefits, to companies and candidates, of the NED register?
One of the things that has discouraged companies from opening up the pool of non-executive directorships is that when you do a search with one of the big name, brass plate headhunters for a NED, you will usually pay their minimum fee. That is usually more than the NED receives in a year you're talking about doubling the cost. (A NED will earn between £15-50,000 a year depending on the size of the company.) But executive searches for NEDs are much easier than searches for full-time executive directors. Why? Because it's OK just to ask the NED candidate if he or she is interested.
To find an executive director, we have to be discreet, we can't tell the executive's PA, and we may have to take several covert references for him. But if I wanted to gauge someone's interest in a non-exec position, I could just ask that person directly. I could ask his or her colleagues and PA.
A search for high-end executives typically has about 600 contacts in it, which is why it's a very expensive and resource-heavy process. The typical search for a non-exec director probably has less than 100 contacts in it; the resource we expend on doing it is much lower, so our charging should reflect that. So we deliver value by doing it at a better rate.
As far as the candidate is concerned, we are more likely to hear of NED opportunities than any one else, so we can provide candidates with access to a wider choice of suitable roles. We will also facilitate networking and produce research into the challenges and opportunities of non-executive directorship, as well as provide a degree of training. So we can give candidates access to credibility that they wouldn't necessarily have if they were doing this on their own.
How is the role of NED changing in the financial crisis?
The NED's job is to protect the interest of the shareholders. I was speaking to a VC recently, who said: "I have four current investments; the boards of those businesses are costing me five million pounds a year to run. I know that the majority of those businesses will fail, I just don't know which ones." VCs are suspicious that, with fewer jobs out there, executives are 'spinning out' the lives of the companies.
It's part of the job of the NED to extend the runway for those companies or, in the final analysis, to protect the shareholders by mitigating the company's losses. So many companies are on a short runway; many of them could be trading insolvent. There's a big difference between running a company until the money runs out and running a company until it can pay all its bills and then close.
Obviously if you're a NED you need to be looking to the second scenario. So the NED's oversight role is more important in stressful times. It can be easy for salaried executives to forget the shareholders because they're so busy trying to save their companies.
For further information on RSA':s non-executive director opportunities, visit www.thersagroup.com/NED/