Challenged by the 'police'

Non-executives can be catalysts for change as well as ticking boxes, finds

A string of high-profile business collapses at the end of the 1980s boom got many people thinking about introducing more policing in the boardroom. And non-executive directors seem to fit the bill. The impression now is that the people who take on such appointments are really signing up to become corporate watchdogs.

This certainly is one aspect of the job. But there is a growing realisation that putting such stress on compliance is undermining the more positive role non-executive directors can play.

Sir Brian Pitman is chairman of Lloyds TSB as well as the recently rejuvenated retailer Next, where he took over from Lord Wolfson last year. He's a firm believer in stressing the more positive aspects of the job. Next month he will be telling an international conference at Henley Management College that boardrooms should be creative and dynamic forces for change.

Sir Brian sets a lot of store on getting the composition of the board right. He is especially keen on attracting people with a range of business experience, on the grounds that the challenges they have encountered are "usually very similar".

He points out that boards should concentrate on choosing the right strategy. At Lloyds TSB and Next he has found there are "two factors that matter most". First, what is the market environment for that particular product or product group? Second, how does the company position itself in that market to be more effective in creating value?

In the case of Lloyds TSB, it is driven by its desire to create shareholder value. Sir Brian believes the value of this is to focus directors on performance - whether it be deciding what the organisation is going to do to differentiate itself from the competition or determining the pay policy for managers.

At Lloyds TSB, Sir Brian has the assistance of his non-executive directors, including Christopher Gibson-Smith, a senior executive with BP Amoco; Thomas McKillop, chief executive of the pharmaceuticals group Zeneca; and Sir Ian Prosser, chief executive of the drinks and hotels group Bass.

Such an illustrious group would be of limited use if it did not have the material with which to make judgements. "No board can really participate effectively without having good information on time," he says, adding that he sees a key role of non-executives as being to challenge the executives.

The bank's management has to prepare detailed reports for board meetings whenever some change in strategy or fresh initiative is to be discussed.

"It's not just bureaucracy," Sir Brian says. "We repeatedly force people to come up with three strategies because we believe creating a cadre of strategic thinkers is a source of competitive advantage."

The Government has just commissioned the National Training Organisation for Management and Enterprise to investigate the requirements for successful leadership in the new economy, while Andersen Consulting's institute for strategic change has just published a report on "The Evolving Role of Executive Leadership". This describes how the fast-developing modern economy increasingly requires a new model of leader.

At the same time, the Institute of Directors is encouraging its members to become better qualified. It has launched an initiative with Ernst & Young, the accountants, aimed at highlighting the value to firms of having strong, independent directors. The move was a response to an NOP survey which showed that captains of industry identified vision, clarity and strategic direction as vital defences in an increasingly hostile commercial environment.

Non-executive directors can turn into a bit of a joke - they may be handsomely rewarded for turning up to a few meetings a year. But at Lloyds TSB they are expected to read complex briefing papers and prepare questions ahead of each of the 11 board meetings a year. It is not unusual for Sir Brian to telephone a director if he wants to discuss a certain issue. As he points out: "In many ways, non-executives are the best value for money consultants you can get."