Known for its ‘lighter touch’ regulation, AIM has been an attractive market for growing organisations, with some looking at it as a stepping-stone to full listing. However, many organisations of this size are often just exiting the venture capital phase, frequently with executives that do not have the experience needed for AIM. This is when the involvement of seasoned non-executives is beneficial.
Indeed, large or small, an organisation’s board must represent a set of skills needed by the organisation, particularly if such skills are lacking in the executive team.
There is, however, no formula for the ideal board.
Boards are as unique as the companies themselves, with each organisation requiring specialised knowledge. David Pearson, former Chairman of Vividas Group plc, a one time AIM listed company, warns that, regardless of the desire to recruit skills, make sure that the board does not become too large. "An AIM listed company board should be proportionate in size to the company, while ensuring that the non-executive directors exceed the executive directors in number. It is also possible that large shareholders may seek representation on the board. This needs to be managed very carefully not to compromise the independence and its duty of care to all shareholders.”
For many AIM listed organisations, new board members are introduced at the time of listing. This is particularly when financial skills and an ability to navigate the market are needed.
“Coming out of the private equity phase, we had to recruit an almost entirely new board, save for the chairman,” says Ian Denley, CEO of System C Healthcare plc. “We particularly required someone with strong financial skills to run the audit committee as well as someone with experience of running remuneration committees – a role we consider of particular importance owing to its high interaction with the executives.”
Having a non-exec on your board who is well known in AIM circles particularly for his/her past successes can be extremely useful.
John Allbrook, former CEO of GoIndustry plc, admits that he knew little about the market when they reversed onto AIM in 2006. The hire of a former CEO of a market maker was extremely advantageous to them when building an institutional following and getting to know the market. Indeed, much of the City targeting was taken out of the hands of the broker and done by this individual.
“He knew the business and to whom we should be speaking,” said John. “He worked with the NOMAD and broker which was very helpful. His long relationships with institutions gave us a credibility that we otherwise would not have had.”
As organisations make their way through the lifecycle, it may be important to change the skills present on the board. However, a shake-up to any board can be disruptive to the organisation. Ian suggests only bringing in new members if new skills are needed. “If the strategy is changing, the board should be changed. If the board is functioning properly, it should recognise that new skills should be brought on to accommodate this,” says Ian.
David Baynes, CEO of Fusion IP Plc supports the need for skills at different times.“We are made up of 21 smaller, growing companies. Those boards change often because the person that is right for the job at one point may not have the skills needed to bring the company to the next stage of growth.”
Once more, this is when experienced non-executives are essential. Ian continues, “Organisations need experienced non-execs, especially if they are going through the growth and scaling phases. Having people that have ‘been there and done it’, whether it be making acquisitions, finding funding, or setting strategy, is extremely useful.”
Criticaleye AIM Members gave the following tips for the composition of AIM listed boards. AIM organisations should aspire to have board members with:
- A nose for the market
- In-depth knowledge of the listing rules
- Industry expertise
- A excellent reputation within AIM circles
- Experience of running a remuneration committee (as this is the touchstone between the executives and the NEDs)
- In addition, organisations should be open to bringing in new skills when the strategy requires it
Please get in touch if you have any comments about today's update. The next AIM CEO Breakfast takes places on 9 June 2010 - contact us if you would like to attend. The following links will take you to the outtakes from the last AIM CEO Breakfast.
I hope to see you soon,