It’s common knowledge that the board of directors is the backbone and foundation of just about every business. An effective board of directors is an absolute necessity for larger corporations: they help keep management focused and insure that shareholders are protected. But many small companies should also look to create a board of directors, even if they don’t think they need one.
The building of an effective board requires management to think strategically and long term if it wants to eventually build a board of directors that is committed, effective and passionate about its mission. The first step in the process requires the company to analyze the capabilities and resources of the senior management team, identifying challenge areas in the business, and potential solutions, then use that knowledge to drive changes in procedures, communication protocols and in the board selection process.
The composition of a board is unique to every business, as are the individuals on the board. Management should be looking for specific talents for each board position. A fully functional, effective board should have members that bring a diversity of background and hands-on experience in business building, funding strategies, technology and some industry experience.
Everyone knows what it takes to run a successful business, especially a large and complex enterprise. Management obviously needs to have considerable power, but should never be allowed to operate in a vacuum. Power without accountability usually becomes destructive, and usually detrimental to the success of any business large or small. That’s where the role of the board can be effective.
Boards are an American tradition much like democracy. They bring a check and balance system and stability to a business. Boards can help steer new courses or spot trends and evaluate risks that can make or break a business. Boards can provide a road map and guidance for managers. Even more, a board can be a crucial component for survival for a company on life support, or one that’s floundering without direction.
The most pressing challenge for directors, in our current regulatory environment, is performance. To achieve the level of performance expected from them, directors need to be involved and engaged with management. They need to understand their purpose, responsibilities, and have timely access to information on the operations of business in order for them to establish manageable goals and objectives.
The boards of today take many shapes and sizes. There is the passive board, which limits its activities and participation with management. On the other end of the spectrum there is the operating board, which makes key decisions which management implements and that also fills in the gaps in management experience. Which type of board is right for your company is a factor of the size of the business, agenda and management style.
What should your priorities be when you organize a board?
Start the selection process by picking candidates you can trust. Select people you know well, and that you can count on in a crisis.
Don’t pick friends or neighbors. Directors should be qualified and competent at what they do. It’s difficult to ask a director to resign, so choose your directors wisely.
Create diversity. A board should broaden your reach and your way of thinking. Add experienced and talented people to the board that the management team can draw on and access when needed.
Seek out the best people. Many bankers, investors, customers and the press judge companies by their boards. So you may even need to hire a search firm to find the right directors. It’s worth the effort. A director’s talent should be your primary consideration.
Be a good student. Creating and managing a board of directors is as much a science as it is an art. Look at other successful business as examples and learn about the politics and nuances of the board game before you make any definitive decisions.
Look to the future. Every business should be arming itself with the special skills it needs to be competitive in a global economy. Plan for the future and add board members that bring with them the skills you need to manage your business today as well as tomorrow.
An ambitious board-building process is about building a culture within your organization whereby everyone is involved in the value creation process, not just innocent bystanders. Keep in mind that boards cannot easily change their culture, but as members learn to function as a team, board culture will change. The more board members are engaged and understand the company’s agenda the closer they are to becoming the best board possible for the given situation.
An effective board building process contributes not only to the overall performance of the business but also to member satisfaction. So choose your board members wisely, always remembering that the board is the team behind the scenes. A supporting cast and a support group for management.
What makes great boards great are people that can work together as a team with common goals and a defined purpose. As Warren Buffet said many years ago, “Show me a good board, and I’ll show you a good company.”