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Create an effective board for your company
Managing a business is not a simple process. There are many aspects of management and it is difficult to have a firm grasp on all of them. As a business gets larger, and more complicated in its operation, the need for a higher level of management may become apparent, to ensure longer term goals are being addressed.
This is the governance aspect of business ownership.
Why have a Board of Directors?
A board of directors is designed to establish direction and monitor the company performance and represent the investment interests of the shareholders. They do not get involved in the day-to-day running of the business. They are not responsible for staff management, operations or sales and marketing, for instance. They will, however, question the management of the business about these aspects, if the results are not up to scratch. They decide where the business should be going and track progress towards its goals.
Owners - manager - board director
Conflict of interests.
Problems can easily arise if a business has multiple owners, who are employed in the business and also want to have positions on the board. This can cause a blurring of roles, as board members debate operational matters and managers make governance decisions on the “shop floor”.
This makes the businesses managers accountable for their results. In a small business the owners and managers (often the same person or people) are responsible to themselves. They may “report” to their accountant or to each other if they have a business partner. Generally, they only answer to themselves, so never challenge the way they do business or the long-term direction they are taking. A board of directors is a group the business managers (or owners, who may be the same individuals) reports to.
Who are the Board of Directors?
Depending on the ownership circumstances of the business the directors may be elected by the shareholders, or they may be chosen or appointed by the owners. Directors may be directly involved with the industry, (possibly an experienced ex-manager or ex-owner) or indirectly involved with the business itself (for example the businesses accountant or lawyer). Some may be independent and on the board in an advisory role.
Boards do not necessarily need to be large in numbers, but need to be clear in their role. They need to have a mix in their membership, allowing for industry expertise and experience, knowledge of the business itself, and business acumen. Being able to work together for a common cause or objective is vital.
The Institute of Directors is a good resource, or refer to these articles more information.
Action points - What to do next
Request a free advisory session on boards and governance for your company
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