Factors Associated with the Employment of Non-Executive Directors by Unquoted Companies

A novel 'NED employment in unquoted companies model' was formulated to 'explain' the employment of NEDs by unquoted companies. Eleven 'explanatory' variables presumed to be associated with the employment of NEDs in unquoted companies were identified. Less than 20% of the 427 surveyed unquoted companies located throughout the United Kingdom reported they employed a NED. Only 11.5% of micro companies that employed 9 or fewer employees reported they employed NEDs. In marked contrast, 53% of companies, which employed 50 or more employees, employed NEDs. This bivariate evidence tentatively suggested that resource availability (i.e., the ability to pay a NED) might be a key trigger influencing the employment of NEDs. Multivariate logistic regression analysis was used to identify the combination of variables associated with the employment of NEDs by unquoted companies. The analysis focused upon four samples of unquoted companies: companies which employed 1 or more employees (i.e., the total sample), micro companies which employed between 1 and 9 employees, small companies which employed between 10 and 49 employees and medium and large companies which employed 50 or more employees. In the total sample model, five 'explanatory' variables were found to be significantly associated with the employment of NEDs. As hypothesised, the total sample model found that older and larger employment sized companies were significantly more likely to have employed NEDs. Further, the employment of NEDs was markedly less likely to be reported by owner-managed companies. The strategic focus of a company was associated with the employment of NEDs. Companies focusing upon technology concerns and/or a focus upon external financing were markedly more likely to have employed NEDs. Interestingly, four 'explanatory' variables were found to significantly influence the employment of NEDs in the small companies' model. In marked contrast, only one 'explanatory' variable was found to significantly influence the employment of NEDs in the micro companies' model. Most notably, owner-managed micro companies were significantly less likely to have employed a NED. Presented evidence suggests that many micro companies may be 'ignorant' of the benefits associated with the employment of a NED. Policy implications and directions for future research surrounding the employment and contribution of NEDs in unquoted companies are discussed.