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Abstract Until recently the role of non executive directors (NEDs) in small and medium firms (SMEs) was fairly easy to understand. Such directors were usually imposed by venture capital firms as part of the "price" of getting financial backing. Very often, if or when the business became profitable, no such imposition was made. The role of the NED was simply to see that the money provided by the venture capitalist was spent in the manner prescribed in the business plan or to ensure timely and correct financial information was available to both operating management and the investor. Neither of these roles would feature high on the agenda of a big firm's non-executive directors. But with the advent of early initial public offerings (IPOs), perhaps just into the second or third year of an SME's existence, the role of the NED is set to change. A range of new responsibilities are coming into play. This article reviews the range of responsibilities a NED of a high tech SME must expect to take on.
Keywords Non-executive directors, Small- to medium-sized enterprises, Roles
Introduction
In big companies the role of a non-executive director (NED) is more often seen as having a parallel with either an industry regulator or a policeman. He or she is there primarily to represent the interests of the shareholders, mainly City institutions, in overseeing the activities of the executive directors. The Cadbury Committee (1992) report on the financial aspects of corporate governance set out the ground rules for this aspect of a NED's role.
The most visible role of NEDs in big business is when they are dragged into controversies over pay and contracts, or when the managing directors of public companies treat the company's assets as their own. They are also called upon to referee in board disputes and play a major role in hiring and firing the chief executive. It is hardly surprising, with those roles in mind, that big companies go in for having at least three non-executives on the board. Various studies, including those by the Bank of England (1988), Main and Johnstone (1993), Conyon (1994) and Samuels et aL (1996) have all reported the non-executive element of big company boards as making up between 33 per cent and...