Boards of directors are for huge and complex corporations, right? Wrong. Boards can help growing businesses too. Here’s why – and how you can engage your board to help drive your business forward.
If a business is like a ship, then its board of directors is equivalent to the senior crew: making decisions, anticipating problems, questioning decisions and, fundamentally, ensuring the thing travels in the right direction.
In the case of businesses and boats, the intention is to reach your destination (IPO, trade sale or family succession in the case of a business) in the most efficient and error-free way possible.
Why have a board of directors?
Putting metaphors to one side for a moment, the role of a board of directors is to ensure the proper running of a business and to provide checks and balances on the actions of individuals.
It will consider the validity of decisions, inspect behaviour and act as a sounding board for ideas on things like strategy, product launches, sales and acquisitions. To this end, boards can be a useful and important addition for growing businesses.
In the case of public limited companies (in other words, businesses that are listed on the stock market), the board of directors’ primary responsibility is to protect the investments of shareholders. But in doing so, they also safeguard the proper running of the business.
They ensure the business is operating legally and ethically, plus that the management team is not making decisions which could threaten the future survival (and profitability) of the business.
In the case of small and medium-sized enterprises (SMEs), or larger privately run firms, a board of directors is optional but sensible. A simple rule of thumb is the bigger a business grows, the greater the need for a board of directors.
This is because start-ups are generally simple structures with a narrow, easy to digest strategy. But bigger businesses have more sales channels, more staff, complex targets, tougher compliance requirements, and so on.
Boards become important because they bring all the decisions related to these areas into one cohesive conversation, making company strategy more coherent, comprehensible, and effective.
Who sits on the board of directors?
In almost every case, a board of directors is composed of the chief executive officer (CEO) or managing director, plus a selection of the most senior people in each business department, for example finance, human resources, marketing, and technology.
Many companies also recruit non-executive directors and/or a chairperson to help oversee proceedings and advise on strategy from a third-party perspective. Non-execs are senior business people with experience in a relevant market or industry. They may be semi-retired or work in senior positions at other businesses – either way their input is usually extremely valuable.
A typical board might hire an experienced chair to give a ‘helicopter view’ plus one or two non-executive directors who are specialists in specific fields that are essential to the business’ success (for example, a dotcom entrepreneur who advises on a business’ digital development).
If your business has attracted investment from a business angel or venture capital institution, then you may have to appoint a new board member who represents the interests of the funding entity.
This is a necessary evil for some growing business owners, but it can also represent a golden opportunity to inject valuable knowledge and financial capability into your board.
In essence, the role of the board is to:
- Agree strategy
- Assess performance
- Ensure the business is working towards its key goals
- Monitor financial performance
- Manage procedure, legality, and compliance
- Discuss ideas
How to appoint board of directors
In a listed business, board members are voted in by shareholders, in privately held organisations, however, they are elected by the CEO, perhaps in consultation with other senior directors.
If you own your business, then you get to decide who sits on the board. You might want it to be compact and no-nonsense – perhaps a close-knit group of three or four top directors – or bigger, in order to incorporate the views of a diverse group of people.
In a growing number of cases, businesses recruit junior employees to their boards too, to better reflect the organisation’s breadth. The benefit of doing this is that you receive first-hand information from the coalface, instead of indirectly via the observations of a senior executive.
When you have decided who will sit on the board, ensure that members are clear on their role and responsibilities as a board director, including practical information on when the board meets and what happens in those meetings, as well as any additional responsibilities associated with being promoted to the board.
Whether this all comes with a pay rise should also be made clear and all information should be contained in a new expanded contract, agreed, and signed by the appointee and a representative of the company, usually the CEO.
For a more in-depth look at the process of assembling your board, read our article on how to appoint a board of directors.
How to run a board of directors
The secret to an effective board is the smooth running of its meeting schedule, as well as controls on what is discussed and how agreed principles are acted upon.
Board meetings (and what happens before and after them) are the key differentiator between the job of a board-level director and a head of department. So, the key to running a board is making sure meetings are timely, productive, and useful.
During meetings, board members agree strategy and, later, assess its effectiveness. They discuss strengths, weaknesses, opportunities, and threats (SWOT analysis) and consider ways to take advantage of the positives while minimising the risks.
The board meeting is also a time to look at financial performance, procedure, and compliance, meaning a good board can identify legal risk as well as commercial prospects.
Ahead of the board meeting
Meetings run best when boards are on time and well-briefed. Setting a schedule of meetings (once a month or every quarter, for example) helps achieve the former, while the latter is solved by ensuring board members have an agenda, and minutes of the previous meeting, well in advance.
Board documents must be concise, clear, and digestible, leaving no question as to the major issues and what is to be covered.
Managing the meeting
Context is important for board meetings, so think carefully about location and seating plan. Off-site can be a good option as it helps people disengage from day-to-day departmental tasks and switch on to higher, business-wide objectives.
Boardrooms are often depicted as oppressive and intimidating spaces, but it might be better to choose a room – and a seating plan – that encourages the free exchange of ideas, rather than stifles it.
Keep in mind that if you have had to move your board meetings to an online format, all of this may not be possible. Instead, make sure you leave enough breathing space for each member to relax and get comfortable with the new format, even if that means extending the length of your meetings initially.
Board meetings are often run by the chairperson, perhaps in partnership with the CEO or managing director. Assuming the itinerary has been shared earlier, they are responsible for getting through it before the scheduled end of the meeting.
A typical meeting begins with a briefing: a catch up on performance and any events of special importance that have taken place. You might give each executive time to update the room on their department and then invite input from the non-executives, or you could run the meeting with a list of issues to be discussed.
Make sure that the board arrives at conclusions and decisions, don’t allow conversations to run out of steam without being resolved, and ensure that action points are agreed, and responsibility allocated with clear parameters for success.
Set a date for the next meeting and ensure that all objectives have either been met or are progressing at an acceptable rate. By taking meeting minutes you’ll know where responsibility has fallen and who should be in line for either praise or blame.
Upskilling your board
It’s vital to prevent board members from getting too comfortable. A jaded board is ineffective, so it’s important to keep people motivated and engaged. A good way to do that is investing in the sort of skills that will improve directors’ knowledge of strategy, communications, and oversight.
If your board meetings start to feel more like monthly coffee mornings than business-critical events to energise the business and accelerate growth, then invest in training to keep the board interested.
Also remember that frequency is not set in stone, if monthly meetings are eating into your time, then ease back a little. Likewise, during periods of fast change, such as growth or market disruption, then it could be better to meet more regularly.
So, does a small business need a board of directors? Not necessarily, but hopefully these insights reveal the very real benefits of creating one. The shape your board takes is up to you, but such a structure could get to your desired goals quicker and with fewer setbacks.