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Many smaller businesses believe that well-structured company boards are for large organizations only, but in so doing overlook a cost-effective way to add expertise to their business, and so enhance its growth and value – the non-executive director (NED).

While the Companies Act here in South Africa, as in many countries, specifies a company only needs a single director (subject to various criteria which do not generally apply to smaller companies), and so many companies have the sole shareholder as the only director, or two equal partners as directors, having a proper board with an odd number of directors is highly recommended.

Where there are an even number of directors, this can – and often does, especially in cases where two shareholders are the sole directors – result in a stalemate on votes. I’ve seen too many cases where the business has reached crisis point when the directors cannot agree on a course of action, and neither can over-ride the other. Ensure you have a minimum of three directors on your board, preferably with one being an independent non-executive director.

Often, smaller companies that have grown lack the range of skills and expertise they really need at board level. The founders have grown with the business but been so focused on being IN their business and working with the day-to-day issues, they have not had time to educate themselves on the differing needs of a growing company.

Employing the skills and experience of independent non-executive directors can add greatly to the effectiveness of your business by reducing risk through adding experience, knowledge and skills that might otherwise not be available to the company, and in a very cost-effective way, too. And, when looking at potential candidates, remember to look outside your industry for maximum impact – they will ask questions about issues you might well take for granted in the business, and therefore uncover potentially new ways of doing things.

And while on the topic of directors in general, many family-owned businesses make every family-member shareholder a director. Unless they are actively involved in either the executive management of the business or can bring expertise as a non-executive director, they should not be board members. Remember that shareholders have a very different role in the business to directors (or executive management for that matter). Non-contributing family members should not be on the board but would be invited to attend the Annual General Meeting and any shareholder meetings.

So, look carefully at your board. Should you be adding at least one independent non-executive director for the experience, knowledge and skills they bring, delivering a significant return for a relatively small cost?

Remember, well-governed companies typically show higher sustained growth, lower risk, improved capital flow and profitability with lower costs, better staff retention and higher valuations (as much as 40% higher in many cases).

 

#BusinessFitness #Boards #Governance #Growth #NED #Profitability #Resilience #Risk #SmallBusiness #Valuations #QOTW

 

Other short posts on the topic of boards that might be relevant include: