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Using Non-Executive Directors to Expand Your Executive Universe

An Indian Perspective



​In this issue, Russell Reynolds Associates’ consultant Sanjay Kapoor and the India team examine some of the recruiting challenges faced by small and medium-sized enterprises (SMEs) in India and discuss how a strategically chosen board of directors can be a powerful channel for recruiting top-tier talent.

Every Indian enterprise today faces a talent shortage of one kind or another. The challenge faced by mid-sized businesses with revenues in the range of US$250 million to US$500 million is particularly acute. Having successfully survived the start-up phase and developed the critical mass of a going concern, they are now focused on moving up to the next level. This brings the Chief Executive Officer (CEO)—often the promoter who founded the firm—a new set of goals: expanding into new markets, becoming a dominant player in the industry and increasing revenue ten- or twenty-fold.

Achieving these objectives, of course, usually requires a senior management team different than the one the firm has in place. For while the current team, which is likely to have been with the company since its earliest stages, may well have the operational skill to manage an SME, they are unlikely to have the strategic vision and experience to grow the company to the US$2 billion to $US5 billion level. So the CEO then looks to identify a Chief Financial Officer, a Chief Information Officer or a Chief Operating Officer who has the necessary track record and gravitas to do so.

At this point, many CEOs meet with frustration and find that despite their best efforts they are unable to successfully recruit the executives they need. Indeed, they often find that it is more difficult to attract qualified candidates when the company revenue is US$500 million than when it was US$50 million. The reason is that at this point the company is no longer competing for talent against other SMEs but rather against well-known, elite consulting and financial services firms and multinational companies, whether based in India or abroad. Even if the smaller firm can compete in terms of salary and growth potential, its company brand lacks the recognition and status of its larger rivals. (This particularly is the case when the smaller firm is in the B2B sector and located outside the major metropolitan cities or commercial hubs, working behind the scenes to supply its high-profile B2C customers.) And because lower brand recognition of the employer is perceived to translate into lower social and professional recognition of the employee, top-tier candidates often do not view the smaller firm as an attractive career option.

Solving most problems caused by scarcity requires savvier use of the available resources, and this case is no exception. Despite the attention paid in the past few years to the issue of corporate governance, most Indian firms regard the board of directors as a regulatory obligation rather than a strategic resource. But for SMEs looking to recruit the management talent they need to reach the next level, the board can be a powerful tool.

Most Indian CEOs choose their non-executive directors (NEDs) from within their close circle of friends, acquaintances and business relationships. It is understandable that the CEO would want to be surrounded with executives whom he or she knows, trusts and shares social ties. But choosing NEDs in this way adds only marginal value to the experience base and professional network from which the company can draw. Indeed, a NED seat is the perfect opportunity to involve exactly the top-tier talent that an SME needs, in the form of retired or soon-to-be-retired CEOs of firms at the level to which the company aspires. For while the demand for top-tier senior executives far exceeds the supply, the traditional Indian concept of retirement provides relatively little opportunity for retired CEOs to pass along their experience in a structured and meaningful way. This amounts to a squandering of resources, given the vast knowledge and wisdom these CEOs accumulated as they successfully paved the way in the liberalized and competitive new India. These corporate leaders are now in a position to share their valuable experience with those who are willing to ask.

In addition to a new source of seasoned strategic counsel, the SME CEO gains two additional benefits from viewing the board in this way. First, taking a more deliberate approach to board composition sends a message to the business community and potential candidates that the company is committed to becoming a global player, follows best practices and is capable of attracting top-tier talent. More importantly, however, a board that includes strategically chosen NEDs significantly expands the professional network from which the CEO can recruit and increases the firm’s strength. These NEDs act as “forces of attraction” that pull both public awareness and top-level talent to the business. A recently retired CEO of a large concern, after all, will have numerous highly-placed protégés throughout the industry over which he or she retains considerable influence. Once these new directors have settled into their roles, it would not be unreasonable to ask them to find one or two candidates they think would be appropriate for a particular management position. Of course, it will be important to screen those candidates against external, objective benchmarks and industry standards to guide the final selection and ensure the best fit. Well-chosen NEDs can give a company privileged access to candidates it would not normally have and serve as a powerful endorsement of the company to those candidates in today’s highly competitive environment.

Author

Sanjay Kapoor is a Managing Director and Country Manager for India at Russell Reynolds Associates. He has five years of experience in executive search and assessment and focuses on recruiting senior-level executives and board members for both Indian and international organisations across a range of sectors.​​
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Using Non-Executive Directors to Expand Your Executive Universe