An international chartered accountant can often be a very valuable member of the board, whether in the home country or abroad at a subsidiary or foreign investment.

The role of the international NED

International NEDs have specific responsibilities and can experience difficult situations found at international companies. Skills and expertise required of an international NED include an understanding of different cultures and the ability to communicate and comprehend the habits and attitudes of different countries. They should also be able to identify the risks in international political and geographical crises.

Often an international NED will be called upon to settle disputes between the boards in different countries; these are frequently due to misunderstandings as a result of poor communications or different habits. The NED must not replace executive functions but must have the capability to ensure that those functions are carried out well.

Example one: working in a holding company with subsidiaries abroad or major exports

Consider an international NED of a holding company with subsidiaries and investments abroad or with major exports. Although the executive responsible for exports may also be a director, it is the NED who is able to take an impartial and independent view on all board decisions. It is surprising how often board decisions have a repercussion on international affairs, but how seldom the average board will take account of matters outside their domestic market.

Directors that are able to envisage the future possibilities in their domestic market might well be more cautious about international affairs because of their lack of trust of the unknown. NEDs can assist them by understanding and explaining. Further still, foreign investors will feel more comfortable talking with someone experienced in international affairs.

The problems faced

Problems for an international NED of a parent company are often company-internal. 

An international NED should be able to help the rest of the board when investing globally. Similarly, investors and other stakeholders will often have to be convinced that the risks involved in foreign markets are less than many imagine and the rewards are worth the investment. Again, the international NED can provide important input but it is not always easy to have company policies and plans change to take into account foreign subsidiaries or markets.

For instance, a new product might have to be redesigned to take into account foreign practices or laws, or a name changed to be acceptable in another language. A knowledgeable person can add significant value in such circumstances.

HR methods

The HR management methods in foreign countries can often vary: some are very strict, others more flexible. The ethical and social practices can be difficult to reconcile with the home country’s requirements and even the choice of chairman of the main company board might have to be changed to appoint someone with an open mind to international affairs.

In all these cases, strong international NEDs have an important role to play using their wide knowledge and experience of international affairs.

Example two: working in a foreign subsidiary

In the case of foreign subsidiaries, an international NED is often an essential person to communicate and explain head office policies to the subsidiary board and to communicate foreign requirements and possibilities up to the head office board.

However, the person must be seen to be part of the local team supporting the management and not perceived as a spy, although they may well be essential for choosing foreign board’s directors or general managers and advising on remuneration and work practices. They can also increase the main board’s trust in the foreign subsidiary by reporting legal or accounting problems and immediately dealing with catastrophes and adverse geopolitical or economic occurrences.

In many situations they may be able to convince the head office of different but acceptable methods of managing and doing business in the foreign country, but the NED will not accept certain foreign practices which are totally contrary to group policies. In many cases he or she should also be a member of the audit and remuneration committees.

The problems faced

The problems encountered by a NED in a foreign subsidiary include the difficulty of fully understanding that country’s laws and habits and being able to communicate efficiently with the local management.

When differences of opinion occur, they should be able to understand each side’s arguments and be able to reconcile the differences. They will have to deal with the continuous complaint that the head office does not understand their problems and requirements while resolving the complications resulting from both bad communications and also policies which are necessary for the group but difficult for the foreign subsidiary. 

Integrating new NEDs

It is important for a foreign NED to be treated respectfully and in accordance with the host country’s traditions and customs. For example, their remuneration should be correct for the local living conditions. They must not be in a situation where they would not resign for fear of losing a large part of their earnings.

It is also useful if the person has knowledge of other businesses in a foreign country, as this equips them to increase their knowledge of local conditions.

For smaller companies, the travel costs of overseas NEDs may be prohibitive, in which case the effective use of conference calls can be a great help.

Summary

It is important that all NEDs, including those operating internationally, always abide by the definitions from the Higgs Report of what an effective NED should do.

• Observe and uphold adequate ethical standards of integrity.
• Support executives in their leadership while monitoring their conduct.
• Question intelligently, debate constructively, challenge rigorously and decide dispassionately.
• Listen sensitively to others, inside and outside the board.
• Gain the trust and respect of other board members. 
• Promote high standards of corporate governance and seek compliance with local codes where these exist.

An international NED has specific and varied responsibilities on a board which must be carried out professionally, with integrity and with full knowledge of all the circumstances. It is an exciting and interesting role.

Edward Addey, trustee and treasurer, Hertford British Hospital Charity, and international consultant, ADDEY SARL

Non-Executive Directors Group May 2014