Freelance executives for hire

Overstretched businesses can benefit from the skills and experience of independent directors, says John Willcock

Need a chairman in a hurry? Has your finance director left you in the lurch? Perhaps you are gearing up for a float on the stockmarket and need to add a bit of weight to the boardroom. Or perhaps the squalls in the economy have blown you over, and you are looking for someone with the skills to steer you back to an even keel.

Britain's biggest venture capital company 3i has pioneered a service that provides companies with temporary executives to help them out with specific tasks or periods of development. Patrick Dunne helped set up 3i's Independent Directors Programme (IDP) in the late Eighties and as a director of the company has led its expansion into markets here and overseas.

"We now have about 600 members on 1,200 boards, and about a third of those are outside the UK. Taking one of our independent directors onto your board is a great way to get to know 3i," says Dunne.

The idea is simple. The skills that make for a good entrepreneur who can launch and build a new business are quite different from those needed to run a medium-sized, maturing operation. They are certainly not the skills needed if the business gets into difficulties, as can easily happen with fast-growing companies. This is where the IDP comes in. It recruits people who usually have a history of being entrepreneurs themselves, who have spent their career in management, and are now free to go into 3i's client companies and help out for a limited period. It's a hybrid form of management consultancy.

The service is free to companies that 3i has already invested in. It could also be of interest to others, either potential clients of 3i, or companies that are prepared to pay a fee for the IDP's services.

Often these "parachuted-in" managers are entrepreneurs themselves who have built up their own business and sold it. They have money but are still young enough to want to do more. But they don't want to go through the start-up process themselves again, says Dunne. Spending a limited period with a business appeals to them. "Many of these IDP people will have experience of turning around troubled companies – an occupational hazard when you're dealing with fast-growing companies. If you've been involved in a high-growth phase, turnaround work comes naturally," Dunne says.

These independent directors focus on four key roles: chairman, chief executive, finance director and independent director. Globally 3i makes 200 appointments of independent directors a year. "We introduce five or six candidates to the managing director of the company that has requested the help. We agree a specification with the company. The client picks the person, so they feel they are in control of the process, they have ownership of it," says Dunne.

"With our existing pool of independent directors we can introduce rescue chairmen at short notice to a troubled business, for example. Then they can recruit a chief executive and so on.

"We provide independent directors to a lot of distressed businesses, either existing clients or ones that we think have a good recovery potential," he says.

Dunne is also an author, and he uses one of his books, Directors' Dilemmas, to illustrate common management problems at the IDP's quarterly regional events. "We do a lot of training and development for people on the IDP. For instance, there is a 'Twenty Questions' game, 'what makes a good finance director?' This is very useful for meetings between a non-executive director and a potential finance director."

Dunne says the starting point for sorting out the problems of an under-managed medium-sized business is getting clarity. "In family owned and run businesses, there is often a lack of clarity about who is responsible for what on the board. Very often the first thing the independent director has to do is to help the existing management to "keep out of jail", as it were. For instance, avoiding bankruptcy. Finance directors are usually the most valuable in this role, sorting out cashflow problems. Then the independent director can turn to more long-term issues."

Most important of these is usually the prosaic subject of how the company is run. "Good governance doesn't get entrepreneurs' attention," laments Dunne. Entrepreneurs typically don't like talking about "core board processes". These include framing strategy, something most entrepreneurs make it up as they go along. Second, key appointments to strengthen the board. Third, running board meetings properly, not something that headstrong owner-managers take naturally to. A board should represent the views of key stakeholders, not just the entrepreneur and his chums. There is also setting the agenda. All these things Dunne describes as "the plumbing" of the board. "You will get leaky plumbing if you don't get it right," he says.

The IDP is active abroad, particularly in France, Germany, the Netherlands and Finland. "We also offer access to independent directors to clients in Japan," says Dunne. "We can offer UK clients a Japanese board member, for instance. This kind of thing can be very important when British companies are trying to operate in different cultures. Expanding into Japan and the US is where a lot of British SMEs come to grief, he says.

As a director of Britain's biggest venture capital company, Dunne is sensitive to oft-quoted suggestions that this country suffers from a "funding gap" for small, growing companies. The charge is that there is a gap between funding from an ordinary bank overdraft secured on your house, say, and investment from a venture capitalist who will want to put in a big enough sum to make an adequate reward. Between these two extremes, many small companies fail to find the right kind of funding, or so the argument goes.

Is this a true picture? "Absolutely not," declares Dunne. "In fact in the UK there is an excess of capital raised. And it's not just for technology start-ups either. For any company with a good plan, getting capital is not much of an issue in the UK," he says emphatically. "Good venture capitalists make money by making investments, after all. There's a lot of money around."

Dunne admits the scene varies at the smaller end of the scale. The type of investment start-ups can attract depends on their growth plans, he says. Companies such as 3i are most interested in those with plans for serious growth, preferably including expansion into foreign markets. It is difficult for manufacturers to sustain rapid growth relying on the UK market alone, he says, although this isn't such a problem for service companies.

For instance, 3i has one client called Pixology which has developed a system to remove the "red eye" effect from photographs. "It has great international potential," says Dunne. "We provide risk capital, therefore we require a reward when things go well. We invest into private companies by underpinning their capital. In most of them we take a minority position. The buyouts we do are much larger. With these we usually help management to buy out a subsidiary and then we sell it to the stockmarket."

Patrick Dunne has written a number of books including 'Directors' Dilemmas' (Kogan Page) £12.99, and 'Running Board Meetings' (Kogan Page) £12.99. For further information on the IDP, email idpenquiry@3i.com, or visit www.3i.com