Bankers rush to be non-execs

The lesson will be watched carefully by many managers of a certain age and calibre, who have been able to keep themselves busy by becoming non-executive directors. For as little as 12 days work a year, they can earn as much as 30,000 (€48,000).

When Nationwide Building Society advertised for a non-executive director last month, it received several hundred responses. Nicholas Cobold, a recruiter of non-execs for the headhunter Norman Broadbent, says he gets 40 letters a week from people wanting to move into such positions. The number has increased as redundancies in the City of London have risen.

Investment banking is one of the pools from which non-execs are drawn. Examples include Justin Dowley, until a year ago co-head of investment banking at Merrill Lynch Europe, who is on the board of Wyevale Garden Centres. Rudi Bogni, a former chief executive of Swiss Bank Corporation, is a non-exec at Old Mutual.

Timothy Barker, former vice-chairman of Dresdner Kleinwort Wasserstein, and Sir David Scholey, former chairman of SG Warburg, have also taken the non-executive route. Many have several posts.

A lifetime in financial services can provide a strong foundation for becoming a non-exec. Simon Ellen, a former director at SG Warburg and a recruiter of non-execs for investee companies of Ludgate Investment Advisors , says: 'If a company has an interest in corporate governance or how it should deal with the City, investment banking experience is immediately relevant.' Ellen has four non-executive directorships himself.

Bogni agrees. 'Investment banking is a preparation for the fiduciary responsibility of a non-executive position when you advise a client in an M&A or strategic capacity you are undertaking a fiduciary role,' he says.

But making the transition from investment banker to non-executive director is not easy. Andrew Dixon, managing director of specialist recruiter HLR Associates, says: 'It's amazing how many people think that, just because they've earned a couple of million in the City, they're eligible to become a non-executive director.'

Listed companies invariably expect non-execs to have had board-level plc experience. John Stork, managing partner of outplacement consultants Stork and May, says former investment bankers are more welcome on the boards of unlisted companies, particularly those preparing an IPO.

Yet Patrick Dunne at the venture capitalist 3i, which finds many non-executive directors for the unlisted companies it invests in, says fewer than 2% of the people he recruited last year had an investment banking background.

Dunne says he looks for people with chief executive or chief financial officer experience. If that experience has been gained in an investment bank, then so much the better.

But bankers without board-level experience should not despair. Andrew Lowenthal, who helps to place bankers for Egon Zehnder's non-executive recruitment arm, Proned, says that anyone from a managing director upwards can be eligible for a non-executive position.

Michael Moran, at the Penna consultancy, says bankers should line up non-exec jobs before they leave their full-time employer. 'If you are looking for a portfolio of non-executive directorships, you should make your intentions known three to five years before you leave. In corporate finance, clients are an obvious source of non-executive directorships,' he says.

Potential conflicts of interest mean that most banks prohibit employees from becoming non-execs while on the payroll. However, there is a way around this. Non-executive positions in the not-for-profit sector are less compromising and can often be combined with the day job.

Ellen followed this route. In 1994, while still with SG Warburg, he joined the board of Warburg's local hospital trust. Ellen says this gave him invaluable experience of things like audit committees and remuneration policy. It also made it much easier to get non-exec posts elsewhere.

Stork, at Stork and May, says companies have something of a herd mentality once you have one non-exec post, more tend to follow.

It is wise to choose non-executive directorships carefully. Failures of corporate governance at firms such as Enron mean that serial non-execs are treated with increasing scepticism as it is felt that some may not be doing their jobs properly.

Peter Brown, chairman of the Top Pay Research Group, says institutional investors are now saying that no one should be a non-exec at more than four fully-quoted companies.

There have been other pressures in the UK in recent years. These include the Myners review of institutional investment, the Financial Services and Markets Act, and the Turnbull, Hampel and Cadbury reports. All increase demands for better corporate governance.

Organisations such as the Top Pay Research Group are now calling for an increase in fees to match greater responsibilities.

Bogni says: 'The risk-to-reward ratio for non-executives has become unfavourable. Individuals are taking on substantial responsibility and personal liability.'

The problem is not so much financial as reputational risk, says Bogni. At listed companies, failure guarantees public notoriety. Investment bankers aiming to become non-executive directors may yet come to wonder whether it is worth the struggle.