Newsflash: The Benefits to a UAE SME of a Non-Executive Director with a Financial Background
Although non-executive directors (NEDs) are only a legal requirement in the United Arab Emirates for joint stock companies (JSCs), they can be of significant benefit to small and medium-sized enterprises (SMEs). This is particularly the case for a NED with a financial background, who has perhaps operated at the level of Chief Financial Officer (CFO) in the past.
A NED’s role is to focus on board matters, staying away from the day-to-day running of the company and as such providing an impartial view. They provide independent oversight and should constructively challenge the executive directors of the company on high-level issues such as formulation of strategy, performance against goals and adequacy of resources.
Although the situation is changing, other than for JSCs, the concept of non-executive directors is not as developed in the UAE as it is in countries such as the UK where almost 30% of all NEDs have a background in finance, mostly as CFOs.
A NED who has been a CFO is likely to have had experience as an executive director and will be very familiar with the role of a non-executive director. They know how to be good board members because they’ve already been good board members themselves. They have a good understanding of all the constituent parts of a business and a solid understanding of how the finance function impacts business performance.
Ex-CFOs are used to acting as a sounding board to chief executives and to challenging their assertions. They can draw on this experience in their NED role and utilise their specialist knowledge and a wide-ranging general business knowledge to act as counsel to executive directors on key business issues before they are raised at board meetings.
They can also bring additional credibility to an organisation through their personal qualities, profile, network, qualifications and experience to increase the business’s attractiveness to investors, lenders, customers etc. They give confidence to existing and potential stakeholders that the company has access at all times to the independent advice it needs from seasoned businesspeople who draw on an extensive breadth and depth of experience.
They may Chair an Audit Committee, if one is constituted, and provide oversight and advice with regard to issues such as:
- the financial reporting process,
- budgeting and planning,
- organisational risk
- the company’s finance function,
- the audit process,
- the company’s system of internal controls
- compliance with laws and regulations.
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