Do You Need A Board Of Directors?
This segment will help you to understand the role of a formal board of directors and a less formal advisory board.
Phil’s Profit Points™ in Brief:
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A board of directors has a fiduciary duty to act in the best interests of the organization.
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Board members may have personal responsibility for certain things such as payroll remittances.
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A board’s major responsibilities include setting strategy and ensuring key people have succession plans.
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An advisory board is less formal and can advise the president as required.
Do you want to be told what to do? I didn’t think so.
A board of directors can be a scary concept for a business owner or founder who is very worried about giving up control. After all, being strong and focused and making their own decisions is what got the owner to where they are now. However, as Marshall Goldsmith said (and wrote a book), “What got you here won’t get you there.”
A good board can help take you and your company to the big leagues. Are you ready for that?
A formal board of directors isn’t there to tell you, as the owner / founder / president what to do and how to do it. Their main responsibilities are to set the strategy of the organization and ensure that senior people have succession plans.
They represent the shareholders’ interests and need to make sure that the president and senior management are heading in the right direction and have the plans, resources and metrics to make progress and measure results.
That may require specific direction from the board to the president, at times. Major decisions should be based on fact, not just gut instinct or hearsay. Individual preference and bias need to be acknowledged and balanced with professional judgment and sound business practices.
A good board will have members who have been there and done that and can share their experiences. Most importantly, they will ask you tough questions that will improve your perspectives and your decision making. A good board is not the president’s ‘yes men.’
The board has a legitimate role and responsibility to make sure that the president, who may not even be a shareholder, executes the business strategy. The board may delegate strategy setting to the president and other key executives. However, the board is ultimately accountable for strategy development and holding the president accountable for execution.
A board that focuses or meddles in operations is not an effective board and will drive management crazy.
Summary of Board Options
| Board of Directors | Advisory Board |
|---|---|
| Have legal responsibilities Must act in the best interest of the organization Represent all shareholders Responsible for strategy and succession planning May have personal risk Require board insurance Typically a multi-year term Should be compensated |
Do not have standard legal responsibilities Are not bound to act in the organization’s best interest, but can be contracted as such Are not accountable to shareholders Minimal personal risk Do not require insurance Can be short-term Should be compensated |
Answer these questions to see if a board can help you.
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Have you grown the company as much as you can yourself?
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Do you see market potential for additional growth in terms of increased capacity, new service offerings, additional locations and international expansion?
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Are your customers and bankers asking questions about your succession plan?
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Does your management team look to you for all the answers?
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Can you take one or two months of vacation away from your business?
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If you were unable to make key decisions due to illness or accident, would your management team know what to do?
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Does your company have a clear business strategy in place?
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Can your employees articulate your strategy?
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Do you have a succession plan in place for key managers?
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Are key people compensated for results or just for showing up?
In Conclusion
A board of directors or an advisory board can help you grow your business beyond your personal limitations while still providing you with the opportunity to maintain ownership and control. A board can help you to maximize your business wealth, minimize your risk and take your business to the next level or even into the next country.
Tough Question
Who helps the president to keep focused on the most important, long-term strategic opportunities that maximize company value for all stakeholders including shareholders and customers?
From the Piggy Bank
Racing instructors tell drivers that they need to look where they want to go. Looking far ahead will help you to grow your business. Looking at today’s operational issues might make you efficient, but it won’t help you to effectively grow your business.
Have a profitable week!
