Boards should fit the company
That's why a growing number of entrepreneurs are embracing advisory boards as an affordable source of guidance. But there's no one-size-fits-all formula for establishing and operating a board.
Smaller businesses tend to implement governance structures gradually, on an as-needed basis. For example, an entrepreneur may initially consult family, friends and business contacts for advice.
Later, as the business grows, he or she may add an informal advisory board, whose role becomes more formal as the business grows. As new investors are brought on, a final step may be the creation of a formal statutory board of directors.
The key is ensuring that the board is fulfilling the company's needs on an ongoing basis and not slipping into a cosy club structure.
Entrepreneurs should to seek out directors with a range of experience and expertise. If everyone on the board is a financial expert or a lawyer, the group may not add as much value as if it were more broadly diversified.
Watch out for pitfalls
It’s also important for entrepreneurs to carefully manage group cohesion on the board. Unless an attitude of trust and openness prevails, management could start holding back information or deliver it at the last minute. This could result in rubber-stamp decision-making.
Another pitfall to watch out for is directors who are looking out for their own interests first. When board members are selected primarily because of their personal holdings, the distinction between what is good for them and what is good for the organization can become blurred.
5 tips on running a board
Here are some pointers on how entrepreneurs can run effective boards.
- Inform board members they need to step back and look at the business as a whole, and not just at isolated issues.
- Prepare an agenda and relevant documents, such as financial statements, for meetings and circulate them beforehand.
- Keep minutes and follow up on unresolved items.
- Be honest and open. Provide board members with as much information as possible.
- Work at retaining people. The contribution of board members often becomes richer over time.