Is Your Firm Ready for a Board of Directors?
Your Company introduces a weekly column by TEC Worldwide, an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help each other solve problems in a confidential round-table session. The following questions and answers are summaries of discussions at recent TEC meetings in Southern California.
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Q I run a small private company and have 100% ownership. Lately I’ve been thinking about installing a board of directors to help me grow the company. What are the pros and cons of such boards?
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A Boards of directors offer many advantages, particularly in privately held companies with limited access to needed resources. In addition to offering objective counsel in regard to the company’s vision, mission and strategy, a good board can bring additional skill sets to the table, provide connections to capital markets, enhance credibility within the community and, perhaps most important, hold you accountable for your performance as chief executive.
At the same time, boards can create certain financial and legal obligations. They also have the potential for conflict and bad advice if you put the wrong people on the board or don’t manage it properly. In addition, many business owners, especially those used to running the show with no outside interference, find that they don’t like having to report to a group of people whose job it is to scrutinize their every move.
That said, in most situations the benefits of an effective board far outweigh the potential drawbacks. Before rushing to put one together, however, give some serious thought to the following questions:
What kind of board do you want? A formal board of directors has legally defined obligations and responsibilities. A board of advisors, whose function is generally limited to providing advice and counsel to the business owner, has no binding legal authority. Private business owners should think carefully before taking on the responsibilities and legal obligations of a board of directors.
What do you expect from your board? For example, do you want your board to focus on high-level strategy issues and market opportunities? Do you want it to mediate between family members in the business? Do you want it to help open doors to equity and capital markets? Be very clear about your expectations.
Who should be on the board? Beware of limiting your board to “insiders”--family members, senior officers or key service providers such as your banker or attorney. Although these people certainly have a place on the board, you gain a lot more by including outside experienced business people who can bring different backgrounds, perspectives and skill sets to the table.
How committed are you to making it work? Realizing a worthwhile return from your board requires investing the time and energy to recruit quality members; set clear expectations; provide timely, accurate information regarding company financials and high-level issues; run the meetings and provide feedback on how well the board is meeting your needs.
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Q We’re a small manufacturing company. Our industry, like many, is changing and I need help determining the direction of the business and the need for investment in new technology. How can I resolve these issues?
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A With today’s rate of change in many industries, the decisions you face are particularly challenging. The question is: Can you anticipate and capitalize on the changes that are sure to come in the next 10 years? If not, your company will be at risk in the future. At-risk companies are generally those that can’t escape their past (gradual growth and ongoing success have engendered a sense of complacency) or have failed to invent the future (an optimized business system and maximum efficiency create a momentum that can be mistaken for leadership).
The solution is to develop foresight, which begins by forgetting the past. In almost every case in which companies lose significant market share, it is a result of competition they never imagined. For example, General Motors lost huge amounts of market share to Toyota, not Ford. Sears worried about J.C. Penney and then got blind-sided by Wal-Mart. Don’t fall into the trap of resting on your laurels.
Next, try to imagine what the future might bring to your industry and where technology will take it. Read the appropriate periodicals and the science section of the paper to stay up-to-date on the latest technologies. Challenge traditional beliefs about pricing and performance in your industry.
Finally, ask yourself what would happen if you based your decisions on what you could do, not on what customers want you to do. Once you have imagined what the future will look like, you can start building it in ways that will put your company on top.
If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, ext. 3177. To learn more about TEC, visit https://www.teconline.com.
