Do Smaller Companies Really Need Non-Executive Directors?

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

It is a fair question, and one many owners of smaller companies ask with a healthy dose of scepticism: non-executive directors are associated with large listed companies and formal governance codes, so does a smaller, privately owned business really need one, or is it an expensive affectation? The honest answer deserves to be given honestly — and it is not a simple yes. This article sets out when a smaller company genuinely benefits from a non-executive director and when it may not yet, so that the decision is made for the right reasons. If you have already concluded you want to explore an appointment, you can see how we help privately owned businesses at private companies board member search.

The Honest Answer: Not Always

It is worth starting where a sceptical owner starts, because the concerns are legitimate. A very small or very early-stage business, still finding its product and its market, often does not need a non-executive director yet: the priority is survival and traction, the founder is close to every decision, and the value an independent voice adds is limited when the company is still so simple that little is hidden from view. The cost is a real consideration too — a good non-executive is not free, and for a business watching every pound that money may be better spent elsewhere for now. And the instinct many founders feel — that bringing in an outsider means ceding some control at a stage when they are used to making every call — is understandable. It is worth being clear, as well, that unlike premium-listed companies, smaller and privately owned businesses are not required by the UK Corporate Governance Code to have independent non-executives at all; for them the question is genuinely one of value, not compliance. A non-executive appointed too early, or simply because it seems like the done thing, tends to add overhead without much return. None of this is an argument against ever appointing one — it is an argument for appointing one at the right time and for the right reasons, which is a very different thing from never. Recognising that a NED is not automatically necessary is, in fact, the beginning of using one well.

When a Smaller Company Genuinely Benefits

The case changes — often decisively — as a company moves past its earliest stage, and there are some fairly reliable moments when the value of a non-executive rises sharply. The clearest is growth itself: as a business scales, it becomes more complex, the decisions get bigger and harder to reverse, and the founder who could once hold everything in their head increasingly needs an experienced outside perspective to challenge their thinking and spot what they cannot. Taking on external investment is another: investors frequently expect, and value, independent representation on the board, and a credible non-executive both reassures them and helps the company meet the higher governance expectations that come with outside money. Professionalising the business — moving from a founder-run operation to one with a proper management structure — is a natural moment too, since a NED can help build the disciplines and the board that a maturing company needs. So is the approach of a sale, a succession or a generational handover, where independent experience of that road is invaluable. And there is the quieter but very real benefit for a founder or small leadership team who simply lack a trusted, experienced sounding board: someone who has seen these challenges before, has no operational axe to grind, and can be honest with them. In each of these situations a good non-executive brings challenge, perspective, credibility and the benefit of experience that a small internal team cannot generate on its own — which is exactly why the strongest advice is usually not to leave the appointment too late, a point made in why SME boards shouldn’t wait to hire a NED. Some of the signs that the moment has arrived are set out in seven signs your business needs a NED now.

Getting It Right for a Smaller Company

If a smaller company decides the time is right, the way it approaches the appointment matters as much as the decision itself, because what works for a large listed board is not what a smaller firm needs. The first principle is fit over formality: a smaller company does not need a big board or an elaborate committee structure; it needs one or two well-chosen people whose experience genuinely matches the challenges the business faces. The second is finding a non-executive who understands the reality of a smaller company — someone pragmatic and hands-on in their engagement without crossing into operational management, who can be a genuine help to a stretched founder rather than a distant overseer, and who is comfortable with the informality and pace of a growing business. The distinction still holds that a non-executive oversees and challenges rather than runs the company, but in a smaller firm that oversight comes with a closer, more supportive, more mentoring relationship than it might on a large board. It helps, too, to be clear about independence: even in a small company, part of a non-executive’s value is that they are genuinely independent, which is why a NED is normally paid a fee for their time rather than given equity or performance-linked incentives that would compromise their objectivity. And while the governance codes do not bind smaller businesses, their underlying principles — independent challenge, clear accountability, honest oversight — are worth borrowing at whatever scale suits the company. Approached this way, with the right person at the right time, a non-executive director stops being a question a smaller company debates and becomes one of the quiet advantages that helps it grow up well. At NED Capital we help privately owned and growing businesses find exactly that kind of non-executive. Every search is led personally by Adrian Lawrence FCA, a Fellow of the ICAEW and former listed-company finance director who has worked with businesses of every size across the UK.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.

Adrian Lawrence

Adrian Lawrence FCA is the founder of NED Capital and a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW) and holds an ICAEW practising certificate in his own name. He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience working with boards, investors and business owners across the UK. He founded NED Capital to connect businesses with the independent Non-Executive Directors they need to provide challenge, governance and strategic oversight — and personally leads candidate assessments for board-level appointments.