Speaking last week with a couple of business owners, it became clear that in both these cases they were missing a great resource that could really work with them to be more profitable, and have faster and more sustainable growth, while reducing their stress levels, and improving company valuations, too.
This resource?
A board.
When I asked them why they didn’t have boards they responded that they were too small and, anyway, they wanted to keep control of their business.
In reality, what these owners are doing is hampering the growth and profitability of their business, not to mention impacting the valuation of the business, while adding to their own stress levels. Having a board, whether a formal one, or an advisory one, really can be enormously beneficial for even the smallest business (and the two owners I spoke had businesses that were not at all in the “smallest” category).
Before dealing with the advantages of having a board in more detail, let me first address the issues of board meetings and control.
In South Africa, the UK and most other countries, smaller companies are not required by law to hold board meetings. However, given that directors (and this applies to those running a business, whether or not they have the title of director) are responsible for the business and have legal duties to exercise proper care and diligence in running the business, and to have appropriate skills for this, regular meetings of the leadership team are strongly recommended.
Without these, it would be difficult to show that they have been abiding by their duties and acting in the best interests of the company (a further legal duty), and the director(s) can be held jointly and severally liable for any and all losses, costs and damages suffered by anyone, or any company, as a consequence of directors not carrying out their duties correctly. And there is no limit to the amounts that can be claimed.
So, regular meetings, with minutes to show discussion details, are critical in being able to demonstrate legal compliance.
As for control, the Companies Acts in the UK and South Africa, as do their equivalents in other countries, clearly lay down that the roles of shareholders, directors and (executive) managers are all discrete and different.
That aside, why are you potentially leaving a great deal of money on the table by not having a board?
Expertise & Skill
Just as the captain of a ship is not expected to be the leading expert in every aspect of running the ship but is there to coordinate the efforts of those experts in engines, navigation, loading, etc., so the owner-manager of a business looks to others for expertise – whether financial, sales & marketing, product development, technical systems, legal, and so on.
Furthermore, businesses often encounter problems along the way which the owner-manager has not come across before (the current global high inflation levels, for example).
A board can bring significant levels of skill in various areas, together with experience of different markets, conditions, and so on. It can also add to diversity of thinking through having a range of backgrounds – and this can be enormously valuable, especially as markets shift.
Think of a board, assuming it has some outside / independent directors, as a very cost-effective set of experts with a range of skills, experience and expertise. It will be significantly less costly, and more committed, than a team of external consultants.
Strategy
One of a board’s main responsibilities in running the business is that of strategy – setting the direction for the business and the way in which this is to be carried out. It is not just down to the CEO to come up with, and implement a strategy – the company board is tasked with this responsibility in law.
Here, again, having input from, and listening to the opinions of, a diverse set of people can really help map a more robust strategy, and put more comprehensive plans in place to implement the strategy. And that’s good for the business.
Accountability
As has been clearly shown, businesses with a strong culture of accountability from top to bottom significantly outperform the norm in their market / sector. They not only grow more quickly, but are more profitable, have a more motivated, stable workforce and happier customers, too.
Often, though, particularly in small-medium businesses, the CEO is not really held accountable and this lack is sorely felt. Certainly, the CEO can ask the team to hold them accountable, but the reality is often different. Given that one of the board’s tasks is to handle performance evaluations of the CEO, and succession planning, this reinforces the accountability issue.
Having a board helps regularise the issue of accountability, strengthening company culture to the benefit of all in the business.
Your Sounding Board
It truly is lonely at the top. In most cases a CEO, especially if s/he is the owner-manager, has nobody to turn to and discuss issues. They seem themselves as being expected to have the answers and to lead the others to the company goals.
The reality, though, is that life is seldom that simple and there will be doubts about strategy / direction as things change – whether internally or externally.
Having an independent person with whom all issues can be discussed is invaluable and, given that in many cases this person is an older, often retired former-CEO, they also often act in a mentoring capacity, adding further value.
Risk Reduction
There is, of course, the old adage, “A problem shared is a problem halved,” but having a board with which to discuss risks and other problems goes so much further than this.
A good board brings different skills, experience and backgrounds to the discussions and can not only highlight different potential risks that the CEO alone might not have considered but can help to determine the best way to avoid or counter these by drawing on this diversity, thereby considerably reducing the risks to the business.
Overall governance
It’s true that a building with sound foundations is a lot more stable, will last longer and cope with changes (seasons, adverse weather, movements in the ground…) far better than one without.
The same applies to companies. Think of governance as the foundations that underpin the business: the rules, processes, principles in place. A company with sound governance will be more attractive to all stakeholders – staff, customers, suppliers and the community as a whole – and so will be better placed to thrive.
Companies with strong board structures and exhibit sound governance can reap the benefits that go with this.
Board options – Advisory Board
For many smaller companies, starting with an advisory board makes the most sense. This is a group of people that do not have a fiduciary or legal responsibility towards the company / owners, but simply a real interest in the success of the business. Its role is to give feedback and advice, but it does not get involved in the actual decisions of the company – that is still the responsibility of the director(s) and leadership team. Advisory boards often meet less frequently that formal ones, and the meetings themselves tend to be less formal, too.
Board options – Formal Board
As a company grows, a formal board becomes an absolute necessity (although sometimes even startups have a formal board from the outset / early days). This board has full fiduciary and legal responsibilities to the company and is answerable to the shareholders / owners. They hold regular, formal, minuted board meetings (ideally monthly, especially in turbulent times – whether for the company or the market as a whole) and are fully involved in the decisions of the company.
Of course, it doesn’t have to be one, or the other. Many companies operate with both advisory and formal boards, with them complimenting one another and having different outside people on both – depending on the business and what its owners need.
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There really is no sound reason for not having a board for your business, whether advisory or formal (or both). The issue of loss of control should not be a consideration, even for owner-managed businesses, while the advantages in terms of expertise and skill, strategy, accountability, risk reduction, stress reduction and overall governance are immense and lead to much better valuations, faster growth and greater profitability.
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I work with high-performance owner-led businesses to enhance their growth, profitability, cash flow and business value.
If you’d like to have a conversation about your business, boards, vision, strategy, culture, or any business challenges or concerns, book a free 30-minute call with me here. I’d be delighted to talk with you.
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