Why Some Companies Function Better Without NEDs

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

It might seem odd for a firm that places non-executive directors to write about when they are not needed. But we would rather be honest: a NED is not the right answer for every company at every stage, and appointing one badly or too early can genuinely hold a business back. Understanding when that is true — and, more importantly, why — is far more useful than a blanket claim that every board needs a non-executive. So here is the candid version.

When a Company Really Is Better Off Without One

There are genuine cases, and it helps no one to pretend otherwise. The clearest is the very early-stage startup, where the founders are still finding product-market fit, decisions need to be made and reversed at speed, and there is, frankly, not yet much to govern. At that stage the formality and cadence a NED brings can be a drag rather than a help; the energy is better spent on the product and the customers. A second case is the tightly owner-managed business whose owner has no intention of ceding any real influence — here a NED often becomes an expensive ornament, consulted but not heeded, and everyone can feel the hollowness of it. A third is the company that has appointed the wrong person: a non-executive who does not understand the business, cannot get past the surface, or slows decisions without adding insight is a net cost, and the board may well feel it runs better in the gaps between their meetings. In each of these, the observation that the company “functions better without” is fair.

But Look Closer: It Is Usually Fit, Timing or the Wrong Person

Here is the important point, and it is where the honest analysis leads. In almost every case where a company is genuinely better off without a NED, the problem is not the idea of a non-executive director — it is a mismatch. The early-stage startup is not better off without governance forever; it is better off without it yet. The owner-managed business does not prove NEDs add nothing; it proves that a NED appointed by someone unwilling to be challenged cannot do the one thing a NED is for. And the company with the ineffective director has not discovered that NEDs are useless; it has discovered that that NED was the wrong choice. Reframed honestly, “we function better without a NED” almost always means one of three things: we were not ready, we did not really want to be challenged, or we picked the wrong person. None of those is an argument against non-executives in general — each is an argument for appointing thoughtfully, or not yet.

The Cost of the Wrong Appointment

It is worth dwelling on the wrong-appointment case, because it does real damage and it is common. A poorly-chosen non-executive can slow decision-making without improving it, consume management time in briefings that lead nowhere, and occupy a board seat that a better-matched person could have used well. Worse, a bad experience can sour a company on the whole idea — a founder who appointed an ill-fitting NED early and found it painful may conclude that non-executives are not for them, and miss out later, at the stage when the right one would have been transformative. This is precisely why the appointment matters so much more than the decision to appoint in the abstract. A token or box-ticking appointment — a NED added to look governed rather than to be governed well — tends to deliver the worst of both worlds: the cost and friction of a non-executive without the benefit. The problem it reveals is a recruitment failure, not a governance one, a distinction we explore in the problem with token NED appointments.

When the Absence Starts to Cost More Than the Role Would

The flip side deserves equal honesty: the “better without” state has a shelf life, and companies often overstay it. The speed and informality that serve a young company well become a liability as it grows, takes on outside investment, enters regulated territory, or reaches a scale where the founders can no longer hold everything in their heads. At that point the absence of independent challenge stops being an efficiency and starts being a risk — decisions go untested, blind spots go unseen, and the very governance failures that a good NED exists to prevent become more likely. Many businesses that pride themselves on functioning smoothly without a non-executive are in fact accumulating risk they cannot see, precisely because there is no one independent to point it out. Knowing when you have crossed from “a NED would be premature” to “a NED is now overdue” is one of the more important judgements a growing company makes, and it is explored from the other side in why SME boards shouldn’t wait to hire a NED.

How to Tell Which Situation You Are In

The practical question is not “do NEDs work?” but “is a NED right for us, now, and who?”. A few honest tests help. Are you genuinely willing to be challenged, or do you want the appearance of governance without the substance? If the latter, wait — a NED you will not listen to is worse than none. Is there enough of a business to govern, with real strategic decisions and risks that would benefit from an independent view? Do you have a clear sense of what you actually want the NED to contribute — sector insight, financial rigour, investor credibility, a steadying hand through a transition — rather than a vague sense that a board “should” have one? And are you prepared to invest in finding the right person rather than the first available name? A company that can answer those honestly will usually know whether it is genuinely better off without a NED for now, or whether it has simply had a bad experience or is avoiding useful scrutiny. For the other side of the question — what a non-executive actually offers and when hiring one makes sense — our guide to what a NED is and why hire one sets out the case in full.

So yes, some companies function better without NEDs — but the honest reading is almost never that non-executives don’t work. It is that the fit, the timing or the person was wrong, or that the moment for one has not yet arrived. Getting all three right is exactly the problem a good search solves. At NED Capital we would always rather tell a company “not yet”, or “not this person”, than place a non-executive who will not add value — and when the time and the fit are right, we find the director who genuinely will. Every search is led personally by Adrian Lawrence FCA, a Fellow of the ICAEW and former listed-company finance director.

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