Would Your Business Benefit From Having a Board? (Part 1)
“When should we establish a board that includes independent directors?” is a question I’m often asked by SMEs, in particular family businesses.
Each case must be considered on its own merits, taking into consideration factors including business size and what stage of the business life cycle you are at.
Here are some tips to help you decide if a board could help your business.
The best reason to consider a board is that a well chosen board of directors can help a business deal with two major issues: growth and succession planning.
Boards help put in place the systems and appropriate checks and balances that are so important when dealing with fast growth.
This can help take a business more successfully to the next level of growth.
It’s important for business owners to have a brutally honest conversation with themselves. They need to ascertain whether their personal abilities are adequate or suitable to take the business to the next level.
It may be that the strengths that helped you create the business need to be complemented or supplemented.
Carefully crafting a board allows you to introduce expertise in important areas such as capital raising, restructuring, opening new geographic markets and strategic marketing.
‘Corporatising’ a business, by establishing a more formal board and governance structure, can also be an integral part of succession planning for future generations.
How a board can help SMEs and family businesses
Getting the right directors can boost a business to its next growth stage – you need directors who bring to the table objective direction and advice, and provide an appropriate level of control for the business.
They can complement the owners’ industry expertise with their business acumen and experience as well as bring new skill sets.
Independent directors provide new networks, especially if your business is expanding into different product or service areas or geographical markets.
Having good governance structures in place can enhance the reputation and standing of your company not only for clients but also financiers and investors.
In the case of a family business, a board with independent directors which sits alongside family business structures (such as a family council and family charter) can assist in separating family and business matters.
Risks of establishing a board
Carefully consider whether the timing is right to put a board in place.
In the case of a founder/owner business, it is a significant step to hand over an element of control to external directors both from an emotional and business process perspective.
A board might not add anticipated value if the directors aren’t a good fit culturally for the organisation.
Or it may be that there are too many other events going on at the company (for example, a new CEO).
There are costs involved in establishing a board. You should budget on paying independent directors an annual fee and board-related expenses such as travel costs.
A range of factors determine appropriate remuneration for directors such as company turnover, asset base, expectations of the directors, and director skills.
However, many companies consider that the benefits a board brings greatly outweigh these costs.
In my next post, I’ll highlight the practical steps of putting a board in place, if you’ve come to the decision that the move is right for you – and show you how to put together the board with the best skills to suit your business.
Kerryn Newton is a guest blogger and an experienced director and managing director of Directors Australia, a specialist board performance and board recruitment consultancy working with clients around Australia.