Boards are not just for big companies – the knowledge and contacts that experienced board members bring can help small companies to fast track their growth.
Imagine how much better you could do things if you were to set up your business all over again. With the benefit of experience, you could progress much more quickly and avoid many of the mistakes.
Setting up a board allows you to achieve a similar effect by seeking advice from people who have done it all before. Your board might include experienced entrepreneurs, people with specialist skills that are not available in house, or with a network of contacts which can help you expand the business.
Peter Pagonis of Deloitte says having a board helps businesses to grow and to raise finance: “The reason for having a board is to help companies go from very small to strong growth, and making sure they have the right processes in place.
“Also, it is important a strong board exists for any business which is trying to raise capital. Banks and financiers scrutinise companies’ strategies and governance structures, so a board can reassure potential financiers that the business is actually ready for growth.”
Conley Manifis, Audit Director of accountants and advisers at William Buck, says SMEs often believe that boards are for large companies.
“These days a board is less about compliance and more about building processes that will help ensure the long-term success of the business,” he says.
“Whether you’re a family enterprise, a privately owned business or a publically listed company, the principles of sound governance are similar.
“Most importantly the appropriate skills of a board will add significant value to your organisation and create a greater level of security.”
But what type of board structure do you need and how do you choose members with the right mix of skills? Here is some advice from the experts.
- Decide how you want the board to work
For smaller companies, an advisory board might be more appropriate than a formal board. An advisory board effectively acts as a think tank – it is not a formal structure and is not covered by company law so the owner can choose whether or not to follow the advice.
However you will still need to put some rules of engagement in place, for example what you expect of advisors, what they will be paid and the number of meetings per year.
By contrast a formal board is a legal entity. It will make the business more professional and give funders confidence that it is being run in a responsible manner. However owners may feel that they are answerable to others for the first time.
If you have shareholders they have the right to appoint one or more directors, depending on the size of their stake, to represent their interests. There should be clear rules in place about who has the final authority to make decisions, board or management, how board members are appointed and how long they serve.
- Identify the skills required
The most effective boards have the right mix of skills. According to the consulting firm Guerdon Associates, investors are showing increasing interest in the composition of boards. It advises companies to take a systematic approach to selecting board members by developing a skills matrix.
It says that companies should start by considering their strategic objectives, and the issues facing the business, and decide what skills or experience will be needed to deal with each of these.
Businesses should also think about their next big strategic ‘leap’ and possible future scenarios, both optimistic and pessimistic, again taking into account the skills needed.
The final step is to prioritise these key skills and develop a skills matrix, comparing them to the existing skills within the management team and identifying any gaps.
- Choose the right people
Any board member you appoint should have a good general knowledge of strategy, finance and accounting, human resources, marketing, leadership and strategic change, and an understanding of the role of board members.
However their expertise should go beyond the business basics and include some of the specialist skills that you have identified. You will also have to take into account other qualities.
Peter Pagonis of Deloitte says: “Look for people with commercial nous, who have the strategy, the big picture and are pro-active.”
Kylie Hammond of Board Portfolio, says that with modern communication technologies, there is no reason why companies should restrict their choice to Australia if they are planning to expand overseas.
She also recommends having at least one entrepreneur on the board and creating ‘a really compelling mix’ of board members: “You want people to come up with ideas you wouldn’t have come up with yourself.”
In fact there is plenty of evidence to suggest that companies with a diverse board achieve better performance. According to Women on Boards research, only 25 per cent of smaller companies have a woman board member. Members of ethnic communities, people with disabilities and younger people can all bring different viewpoints to a board.
Where businesses do not have the resources to attract high-level board members, Conley Manifis suggests they start by drawing on their advisers, such as accountants or bankers.
You will also have to appoint a chairman to lead the board. Peter Pagonis says: “It is imperative to have a strong and independent chairman, who can control board meetings and keep discussions on track. This person also needs to be able to work with others, manage ego and potential conflicts.”
- Monitoring and improving performance
Once the board is established, monitor its performance on an ongoing basis. Are meetings productive – do they deal efficiently with routine matters, while allowing sufficient time to consider ways to grow and develop the business? Are each of the members making a contribution? And is the board bringing the benefits you had expected?
Rebekah Campbell, founder of Posse.com, says having the right board is a powerful tool though she has made mistakes by choosing the wrong people in the past.
“Our board helps me refine our strategy and operation plans; they’re constantly suggesting new ideas and making introductions; they’ve been involved in fundraising; they hold me to account and oversee the governance of the company,” she says.
“The names on our board are impressive but that’s not why they’re there. I’ve learned that a top notch board of great people with relevant experience and a shared vision is a wonderful advantage and has made my founder’s journey easier and more fun.”