Do you know the best way to measure the performance of your pool of Non-Executive Directors (NEDs)? Do you know what is expected of your NEDs over and above attending board meetings and meeting shareholders or how performance is measured for your business?

If not, don't despair - many NEDs don't know what the extent of their remit is either. It is, however, essential that both NEDs and their executive colleagues on the board understand what they bring to the table if corporate performance is to be maximised.

In July 2003 Ruston Poole International conducted an independent research project into the reactions of bio-pharmaceutical companies to Derek Higgs' review of the role and effectiveness of non-executive directors in January 2003.

At that time there had been very little formalised about what exactly should be expected of NEDs, either by individual businesses or by government. The result of this lack ofinformation was that there have been no performance indicators for NEDs for either individuals or their employers to judge their effectiveness.

A complex role

Our survey, conducted with 100 of the leading companies in the sector, confirmed that despite attempts to create a standard job description for NEDs the role is far too complex for a single definition.

The roles and responsibilities of a NED range from developing and maintaining strategic direction and providing a sounding board for decision making (more than 80% of respondents) to opening doors and networking opportunities for their employers. It was agreed that NEDs are also recruited to provide specific expertise, including assistance as companies move towards IPO, expertise in mergers and acquisitions as well as fundraising.

While their expertise in specific areas of business is not questioned, one concern that emerged from our research is that they are not being used to their full potential. Businesses said they were concerned that they are failing to tap the wealth of strategic experience that NEDs can provide. Our research suggests that it is not that businesses don't realise the value that their NEDs can bring, it is simply that there is still this sense that the role of a NED is a 'black art' and nobody is quite sure how to get the maximum benefit from them.

Another concern that our research highlighted was that while the industry recognises the expertise possessed by the existing pool of NED talent, tighter regulation and the resulting increase in fees may stifle the growth of new talent. The result could be a failure to attract the highest calibre candidates into the industry in future and would undoubtedly have a negative impact on the fortunes of many companies in our industry.

This view is reinforced by the fact that current industry remuneration for NEDs remains below average, and well below the £60,000 per year, which was mooted in a report by Russell Reynolds Associates in 2001 which looked at NED activity across a range of industries. Our research shows that current annual fee levels range between £15,000 and £25,000 for UK bio-pharmaceutical company NEDs.

Following our quantitative research, we undertook a series of qualitative surveys to research some of these topics in more detail. The results illustrate the specific concern of some of the major bio-pharmaceutical businesses that the current NED pool will not provide the number of candidates to meet the growing demand.

Expanding the search for talent

It is clear that for the long-term prosperity of the industry, and to ensure that NEDs in our industry pass new independence tests that will now be applied to NEDs under the FRC guidelines, we have to look outside the current pool of talent. This means looking outside the industry and as a result there will be a requirement for a programme of coaching and development so that new NEDs are able to add maximum value.

While the expansion of the NED pool outside the industry is not in itself a problem our research highlighted the need for a programme of coaching and development to ensure that newcomers make the grade. Executive coaching and development plays an essential part in maximising the value of all executives, and would provide NEDs with the confidence to step up from executive positions in a non bio-pharmaceutical company to a non-executive role within the pharma industry.

But why should this be done? Well, apart from the specific nature of the bio-pharmaceutical space, a NED has a different type of relationship with a chief executive and the board than an executive director. As a result different behaviours and skills are required to fulfil their roles effectively. I believe that it is almost impossible for a NED to learn the range of skills and behaviours they need simply from attending board meetings and it would not be in the best interests of the individual or the company they are serving to serve an apprenticeship while in post.

Apprentice directors?

It might sound harsh to suggest that NEDs are serving an apprenticeship, but often even the most experienced executive directors do not fully understand the challenges faced by a NED or possess the skills needed to fulfil the role effectively. Any development programme must include an introductory module on the statutory and fiduciary aspects of being a NED and an introduction to the market itself.

Even for seasoned executives with widespread experience in executive and non-executive positions this would be invaluable. It could also include a guide on the specific statutory and fiduciary requirements of NEDs post-Higgs and details of the specific obligations to shareholders, which all NEDs are responsible for. In many ways this would have been harder to achieve prior to Higgs.

The new Financial Reporting Council (FRC) guidelines with their 'comply or explain' approach to implementation make it possible to provide at least an overview into NED life.

This sort of programme could be conducted as one-to-one coaching, via a peer-to-peer support network, and modules completed en-mass. Current examples run by the likes of the Institute of Directors (IOD) use a range of styles designed to maximise the value of expert trainers and coaches along with the real-life experiences and case-studies of group members.

Another important area that must be included in any development programme is the behaviour and communication skills every NED needs. In order to effectively fulfil their roles effectively NEDs require a blend of verbal and non-verbal communication and behaviour skills. These include Active Listening - listening to what is being said and understanding what is being implied rather than directly communicated - and active questioning - the ability to understand the rationale behind individual director views or agenda by asking the right, sometimes probing questions.

These skills enable a NED to find a comfortable compromise between board member views and lead the strategy of their companies in the right direction.

Our research shows that chief executives in the pharmaceutical industry believe that this vision, an ability to retain focus on meeting aims and objectives, is vital. More than 50% of respondents to our survey indicated that strategic guidance is far more important than involvement in day-to-day operations or industry knowledge.

According to Chris Gulliver, a coach with executive developer company FMW Leadershape, and a NED with 15 year's experience, a leadership development programme would enable new NEDs to kickstart their careers. It could also act as a refresher and performance improvement aid for the current pool to hone and improve their latent skills.

He said: "NEDs are generally senior business people with more than 20 years experience and they often assume that they have no more to learn or that their elevated position as an executive director means they possess all the necessary skills to carry out their new position successfully. This is not necessarily the case. As an active NED for the last decade, I see it as an important part of fulfilling my role to ensure that I continually hone both my understanding of the market and my communication skills.

"As leaders step-up from executive positions to non-exec roles their relationship with the chief executive changes to such a degree that they are no longer there to promote a single view or agenda as may have been the case as an executive board member. For an individual NED to deliver maximum benefit to the board that person must be a channel for a range of ideas. They must then help steer the chief executive to select the correct course of action both for the company and its shareholders. To do this effectively requires a self-awareness of the impact that your behaviour has on others."

NED coaching

One obstacle that must be overcome in order for executive coaching to be a successful tool for the development of new NEDs is clarifying who will pick up the bill. It is clear that it would be of benefit to both parties - the employer gets access to the new talent our research suggests they so desperately need, while the NED benefits from the opportunity to put their skills to use in a new and challenging environment, not to mention the fees. While our research did not specifically consider this area, one option would be to provide a programme funded jointly by employers, NEDs and industry associations such as the Bio-Industry Association (BIA) or the Association of the British Pharmaceutical Industry (ABPI).

As Gulliver explains: "With executive director coaching and development you are guided very much by the aims and objectives of the board and chief executive. After all, the company has a vested interest in ensuring that the skills an executive director develops complement the rest of the board. With a non-executive the task is somewhat different. The skills that need to be developed will assist NEDs to persuade a board that they should follow a certain path or even to lead them in a direction they do not want to go for the benefit of the organisation.

"The other challenge for the creation and success of a development programme is that it will require a significant investment from all sides. For businesses it will be financial, for NEDs it will require a time and intellectual investment. The industry association role will be to help provide and accredit some of the industry-specific content and to assist in the marketing of the programmes to ensure that it becomes an established standard for the bio-pharmaceutical industry.

Achieving change

Whether this can be achieved with a backdrop of Higgs and FRC guidelines that suggest a maximum of two three-year terms is yet to be decided. Our qualitative research shows that in general, chief executives are in favour of a programme of this sort. It would undoubtedly help to bring new talent to the industry and could also help to address the concern that introducing new roles and responsibilities have disrupted many businesses.

It would also act as a foil to concerns that the lower than average fees currently being paid in the bio-pharmaceutical industry could price the best talent out of the reach of many early-stage companies. By providing a way for our industry to develop a new pool of certified talent, the impact on businesses should be greater and, in time, increase bio-pharmaceutical company ability to pay higher fees for experienced NEDs.

Improving the skills and behavioural pattern of NEDs is only part of the story, however. While a development programme for NEDs would ensure that there is a wider pool of high quality talent from which the bio-pharmaceutical industry could choose from, what about the ability of executive directors and chief executives to get the most out of their NEDs? Our research shows that there is evidence that this sort of analysis could enable executives to refine their communication skills to ensure they have all the necessary tools to stretch and challenge their non-executives. This type of programme is already being run by the likes of the IOD and indications are that it is proving a real success.

Non-executive director coaching is, in principle, a way to ensure that the industry resolves some of the challenges facing the bio-pharmaceutical industry which Higgs' report and subsequent FRC guidelines have thrown up. The proof will, as always, be in the take up of this type of coaching and mentoring programmes and the impact that they have on the performance of NEDs and boards in our industry. This approach would certainly tackle the finite pool of NED talent that we have within the industry and enable companies to have a hand in their own destiny.