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Non-executive directors need training in their roles

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Research carried out by KPMG in the UK suggests that non-executive directors (NEDs) recognise that their knowledge is limited in certain areas, and that they are keen to receive more training and appraisal of their work.

The survey showed that whilst NEDs felt confident in their level of knowledge in areas such as financial performance, cash flow analysis and projections, they felt exposed on issues that go beyond financial information. 40% didn't feel that they had sufficient knowledge of non-financial indicators, such as market, environmental, political and employment issues, that could have a material impact on the future business performance of a company.

Whilst the majority of NEDs receive some training in areas such as corporate governance issues and financial literacy, nearly 70% do not receive training on crisis management or issues to look out for in failing businesses - so called 'early warning signals'. The research
indicated a need for training, with 77% of respondents considering training in these areas would be beneficial - especially in the current environment where the effects of failing to recognise early warning signals are all too apparent.

More than half of NEDs are never formally assessed, and of those that are assessed, less than a quarter are assessed each year. However, two-thirds of NED's recognise the benefit of formal appraisal for themselves - and around 95% believe that formal appraisal of the CEO and their executive colleagues would be beneficial.

"Non-executive directors have been largely left on their own to keep pace with changing regulation related to auditing, accounting and legal issues, as well as topping up their knowledge and skills in other areas," commented Michael Hughes, chairman of Assurance at KPMG. "Yet this group are vitally important to the proper running of public interest companies all over the UK, and as their role evolves, so too should the support provided to enable them to do their jobs well."

As for multiple directorships, 69% indicated that lack of available time was a key factor which prevented them from taking on new appointments. 69% also cited reputational risk as a significant deterrent to taking on new posts - further evidence that companies with reputational issues will find it increasingly hard to attract the quality of non-executive that they need.

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