Thoughts on a Board
One of the best ways to take your business to the next level is to create a board of directors, and yet most companies don’t have one.
There are plenty of “reasons” people don’t take this step. There’s a perceived loss of control. It creates more work. There’s no obvious return on the investment. You have to pay people to participate. You don’t want to disclose the details of your business to outsiders. Perhaps there are others, but these are the ones I hear most often. I suspect one that it significant but that people won’t verbalize is “I don’t know how to do it.”
So with all those items in the negative column, why would you want to create a board?
There are a couple of good reasons. First, it just makes good business sense. Unless you are the smartest person in the world (and I’m guessing neither of us tops that list) bringing in other bright minds can only improve your company. I have written many times about owners working ON the business rather than working IN it. If you operate with a board of directors, you will take great leaps forward in working ON rather than IN.
The second reason is for business continuity. I’m working with a company right now that’s in the midst of generational succession. The dad wants to ensure that the kid is set up for success. He doesn’t want to meddle in the day-to-day, but he still wants some control at the 100,000-foot-level. Ownership is transferring, but dad will have skin in the game for some time and wants to be able to hold management accountable for performance. Meanwhile, the “kid” is ready, but would appreciate some strategic direction without being micromanaged. Creating a board suits both of their needs.
A good board does a few things:
· It sets strategic direction for the company. Even if a team of company leaders develops the strategic plan, it is ultimately reviewed and approved by the board. The board then charges the leadership team with executing the plan.
· It helps minimize blind spots. People from the outside can look at things through different lenses. They don’t have the “we’ve always done it this way” or the “we tried that once and it didn’t work” mentality. They are not prejudiced by relationships. It’s easier for them to call a spade a spade. Plus (if you select well) they bring in expertise that you might not have on your team. Every business has weaknesses. I love to see companies appoint people to their boards who are experts in areas the company is weak. I also love to see companies reach out to similar companies in other parts of the country to bring in a peer owner or two. Even better is bringing in someone who owns or runs a company bigger than yours. You don’t only get better in a sport by playing someone who is at a level above yours.
· It provides accountability. Sometimes owners shy away from this. Who wants to be held accountable for your actions in your own company? I completely get that. But that’s not what I’m talking about. Instead, I’m talking about holding the management team accountable. Also, there may be times in the future when the owner steps away and the next gen takes over. That’s the case with the company I mentioned earlier. The kid will one day be the majority owner, but that will not be the case when the transition takes place. The kid will answer to the board, and the board does have firing ability. Hopefully it never comes to that, but you can see the wisdom in the kid answering to the board in this situation.
I think it’s important to note that there are two kinds of boards: advisory and managing. An advisory board has no authority. The owner(s) retains the ability to make the final say, but they benefit from the wisdom of the board. A managing board has actual authority. Most of the time, I see advisory boards.
Over time, it’s my perception that companies with boards perform better than companies without them. Business research backs that up. These are the companies most likely to have a strategic plan and think about generational transition early enough to do it right. These are the companies not content with just opening the doors and seeing what the marketplace will give them. They want to determine their own future and ensure they have the resources to achieve it. These are the companies that think about what they need to change to make their workplace magnetic rather than whining about the lack of good labor. They see the future and adjust their strategy ahead of time.
Business it tough, and it’s not going to get any easier. If you are going to survive, you have to get better because the competition is absolutely getting better. The most significant thing you can do to secure your future it to implement a board of directors. Lots of good stuff flows from that point forward.
