Many companies, especially smaller ones, are neglecting an extremely valuable resource – the board – believing, quite wrongly, that the board of directors and board meetings are simply about statutory compliance and are costly in terms of time and money.
Nothing is further from the truth. A well-constructed, high-performing board can add immense value to the business in a number of ways, as can regular board meetings.
Let’s first recap what the board is responsible for, before looking at the benefits and what to look for when constructing your ideal board.
The primary role of board is to direct the activities of the business in such a way that the interests of all stakeholders (not just shareholders, but employees, customers, suppliers and the community at large) are met.
This means it is responsible for, among other things:
- establishing the vision, mission, values (and, therefore, culture);
- the strategy of the business, and the structure necessary to support this, together with an appropriate framework of controls;
- the appropriate management team for the business, delegating the implementation of the strategy to it and monitoring this;
- full accountability to the shareholders with responsibility to the relevant stakeholders.
As this clearly shows, the board has a very weighty set of responsibilities, and can make – or break – a business.
So, what should shareholders be looking for from the board members – for it is, after all, the shareholders who are responsible for appointing the board – to gain the immense value that a good board can add?
Expertise & Knowledge
A basic understanding of the duties of directors will highlight the importance of knowledge and expertise. Note, that although the article referenced is written for South African company law, those same principals apply in almost every English-speaking country, including the UK, UAE, Australia, Canada, the USA and others – while many other non-English-speaking countries have adopted the principals, too.
Essentially, directors are expected to have sufficient knowledge and expertise to carry out their business oversight duties competently. Of course, having a board with a diverse range of skills, backgrounds and experience is important to ensure a wide range of views can be considered, but expertise and knowledge are still vital. There is often a view that all board members should have deep knowledge and experience of the particular industry/ies in which the business operates, but this is a misconception – certainly, some should, including most of the executive directors, but including directors with experience from other sectors is invaluable, bringing new points of view to discussions and considerations.
So, the ideal board has a range of skills, industry knowledge and experience, but all members should have at least solid expertise and knowledge of their fields.
Independence, Objectivity & Courage
Allied to this is that directors are not only expected, but obligated to act independently: to not just follow an instruction on, say, a vote, from the Chair or CEO, but to consider all information at their disposal and act accordingly. They need the courage to speak out, even if they believe their view is a minority one, as it must be considered – and included in the minutes of the meeting.
In the past, boards were often constructed of friends, family members and people well-known to the other board members – perhaps from university, school or clubs. This did not lend itself to high levels of independent thinking and action, and often resulted in the board making bad, or ill-considered decisions.
Great board members are those with enquiring minds and the courage to act independently and objectively.
Strategic Thinkers
Given that one of the primary roles of the board is the oversight of the company’s strategy, it is expected that all board members have a strategic thinking mindset. This really builds on the two previous points, insofar as board members must think beyond the day-to-day issues affecting the company, looking more broadly to consider what opportunities and challenges / risks the company could face in the future, and what direction the business should be taking.
They need to consider not only who the current competitors might be, but also where new ones could emerge, and what products and services might need to be developed to cater for potential changes to the market – balancing both short-term and long-term objectives.
In this context, board members with wide and deep experience on which to draw, and a track record of active participation in businesses with solid, long-term growth can add significant value.
Integrity and Ethical Standards
It should go without saying that all board members should have integrity and unquestionable ethical standards. Unfortunately, though, as court cases in the past have shown – and these are likely just the tip of the proverbial iceberg – this is not always the case.
Directors are required to not use their position for personal gain, nor to cause the company harm or compete with it, and to disclose any information they come into possession of that might affect the company.
Separation of company and personal assets is an essential part of this, and something often overlooked, especially in owner-managed businesses. A company is a separate legal entity (persona) and directors are expected, and legally bound, to act in its best interests at all times.
So, directors must have standards of integrity and ethics that are without question.
Financial Acumen
Of course, all board members need to have a level of financial acumen. This does not mean that all need to be at the level of Chartered Accountant, or even Accountant, although at least one should be, but all should at least have a level of financial understanding that enables them to understand the position of the business in terms of solvency and liquidity.
In fact, every board meeting should address these with a simple five-word question – it’s critical if the board members don’t want the risk of reckless trading as this can, quite literally, cost them everything.
But, their understanding of financial matters should really go further than this, enabling them to look at the risks inherent in large contracts or purchases, new lines of business and the entry of new competitors or changing market forces: just look at what interest rates have done in the past couple of years, for example, and the impact on consumers and businesses alike.
All board members should have a level of financial understanding that enables them to actively participate in discussions around the health of the company, strategy and risk management.
Leadership and Communications Skills
As I’ve said before, communication is one of the critical skills any business leader needs, and this includes board members, for they have to be able to clearly articulate issues with all stakeholders in a business – shareholders, other board members, company staff, customers, suppliers and the wider community.
And it’s not just speaking skills, but listening skills, too. To be able to build trust, manage potential conflict, and foster a collaborative culture with the board and the wider business means hearing the views of others and being able to constructively debate these with questions and feedback.
Ensure your directors are both good listeners and communicators to have a board that can participate with all stakeholders.
Commitment
Finally, but no less important than the other points is that the board members need to be committed to their roles. Simply going through the motions isn’t enough, as the expectation of directors is codified with the inclusion of the word ‘diligence’ within the phrase expressing that directors are expected to operate “with the degree of care, skill and diligence” that would be expected of anyone in the role of director.
Directors are also expected to not only look at the performance of the CEO, and often other top executives, but at their own performance, too, with annual assessments of the overall board in terms of skills, knowledge and experience, as well as of the individuals, providing development plans where necessary or looking to fill any gaps in other ways.
Being a director is an ongoing process: not simply a proforma meeting once a quarter, but regular meetings with a properly constructed board calendar and preparation, and it carries a good deal of responsibility, so commitment to active and ongoing participation is a key factor for directors.
Conclusion
A board, whether for a large or small company, needs to be carefully constructed, considering the following criteria for the board and its members: a range of expertise, knowledge and experience, with members having unquestionable integrity and ethical standards, leadership and communication skills, and with a sound grasp of financial matters, who are strategic thinkers with independence, objectivity, courage and commitment.
A high-performing board of such directors can, and will, add immense value to the business, working with it to ensure sustained profitable growth that significantly outperforms other businesses, and ensuring a far higher company valuation.
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Following a career spanning >50 years in the technology industry across three continents, with three decades in CxO roles leading significant, sustained growth in revenue and profitability, I now work with successful owner-led businesses to further enhance their growth, profitability and business value.
If you’d like to discuss your board, business strategy, trends, culture, goals, or anything else related to your business, book a confidential, free 30-minute call with me here.
I’d be delighted to talk with you.
And if you’d like to learn more, these related posts might be of interest:
- The Role & Responsibilities of the Company Board
- Directors – Are You Risking Your Assets?
- 1 Critical 5-Word Question for All Businesses
- Why Even Small Companies Need Regular Board Meetings
- Why a Proper Board is Essential, Even for Small Businesses
- NEDs – a Cost-Effective Way to Add Significant Value to Your Business
- Board Meetings not Bored Meetings!
- Proper Preparation for Productive Boards
You might also find these articles from McKinsey to be of interest:
And from Forbes:
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