Doing your homework

About Andrew Gibbs

Andrew is a partner in the Wellington office of Deloitte. He is a trusted advisor to growing businesses and has a passion for helping businesses realise their full potential. Andrew sits on a number of advisory boards where he brings a range of skills including business planning, financial and performance management. A focus that he brings to an advisory board is to ensure that there is a clear understanding of how the business will achieve value-creating growth and, more importantly, how they will sustain it.

When asked by an owner/manager of a successful business – why should I have a board? Andrew's response is quite simple. "The success of any business starts at the top and having more than one person providing direction and oversight has greater potential to deliver a better outcome."

If the board has the right skills and competences it will add tremendous value to the business.

So how does a board add value?

• Firstly it sets the strategic direction of the company.
• Secondly it ensures that the business has the resources to implement and execute the strategy.
• Thirdly it independently monitors the performance of the business in achieving the objectives set and makes changes as required.
• Finally it has a statutory role to ensure the business is compliant with the rules of the land.

Andrew has observed that a key characteristic of businesses that are stronger today than before the economic crisis is strong governance delivered through the board. These businesses have a good understanding of what success looks like, a clearly articulated strategy and the capability and commitment to deliver.

In Andrew's experience, many businesses are becoming more collaborative, understanding the value in seeking out informed opinions before making up their own corporate mind.

More and more, we are seeing managers of growth businesses set up a board to help them make the right decisions for now and for the future. Input from boards generally falls into two areas – factual advice and future strategy.

"The first is the cold, hard facts: tax and accounting advice, a legal or statutory matter for example, which is often either a compliance issue or a specific company problem that needs to be resolved and they're seeking some support and advice around that."

"The second type of advice is more around strategy and shaping the future. This is what I call the business advisory space – sitting back and being more holistic about the direction the business is going in. Management now are reaching out to get opinions from two or three people and getting a consensus around that thinking. A board meeting is an effective environment to do that on a face-to-face basis."

Why do you need to talk to more than one person?

Because of the quality of several challenging conversations, Andrew suggests, that might be generated by management tabling an issue and saying: "I've got this opportunity to invest $20,000 worth of our capital in this opportunity. What do you think? Here's the paper, here's the cash flows, here's the due diligence I've done. You've read the papers I submitted to you last week. Now can I have your feedback? What are your concerns? What are the risks? What is your recommendation on whether we should go forward with this investment or not, or modify the option as the case maybe."

Doing your homework, in other words.

So how do you build a successful board? Two matters to consider – what are the competencies required by the business and secondly the individuals have to be passionate, committed and prepared to invest the time.

Establishing a board

For starters, Andrew says, owner/managers considering setting up a board should start by doing their research and seeking advice. Talk to managers of other high-performing business who have set up to a board. Ask to speak with members of their management team as well, in order to get their views on the board and the how in their opinion the board has created value and assisted them to perform better.

The first question to assess when determining the makeup of your board, he suggests, is the quality of management. You need to understand the strengths and weaknesses of existing management and the sector that the business is operating in, in order to determine what would be the best mix of board members.

Therefore, you need to develop a competence matrix and ensure each skill required is covered off by the members of the board. For example in you are an exporter to say China, having somebody who has extensive experience in China and understands the risks and opportunities could be of value to management.

"Another option to consider is to add a director who is completely independent and doesn't know much about your industry sector. This director is not plugging a specific technical skill in the management team, but can provide pragmatic input by being purely an independent, asking the right questions and challenging the status quo. Questions like, "Can I understand and reconcile the strategy with the plans and can I see focus? Has the management team got the right people doing the right things? Do I have confidence in the financial information? How do I see the performance management framework coming through?"

Often, Andrew believes the best way to approach selecting your board is finding somebody you can trust and would like to be on your board. Working together, you might then ask the following kinds of questions:

• What are the risks the business has got? Where are the opportunities?
• What skill sets are we missing?
• Do we need people with relationship or other skills? For example, do we need somebody with a financial capability on my board or is iternational marketing expertise important, or both?
• Are we looking for a more risk-orientated board?
• Are we looking for a board that can give us confidence to enter new markets?
• Do we operate in a sector that involves a lot of legal compliance and requires perhaps, a lawyer to be on my board?
• Are we a more brand management, marketing-orientated company or an exporter?
• Do we need somebody with those types of skills and connections in international supply chains?

Answering these types of questions can assist you in deciding what skills you require on the board.

Questions to ask

Assuming that a governance model like a board is of value, managing directors who are thinking of setting up a board for their business need to ask:

• What do I want in terms of a board?
• What are the skill sets?
• Who are the people I'd like to sit around the table?
• Why do I want them there?

When you start to do your homework and ask the right questions, you've got a framework.

Commitment

As a board member Andrew Gibbs believes in the benefits of doing one's homework. Again and again, as a partner at Deloitte, a member of advisory boards at Productspec and Moxie, and a board member and investor in Global Career Link, he has seen it pay corporate dividends. As a new member of a board it can take some time to gain a full understanding of the business, but once you have that understanding you have to invest the time to in order to be in a position to add value.

"As a service provider to businesses I have presented to boards where some members clearly have not read their papers and are playing catch up on the day. This is not acceptable and frustrating to those who have made the commitment."

If one accepts the role there is an implied assumption that you have the time to commit to the job. A board has to be subject to a performance management framework, just as much as management.

Another characteristic of a high performing board is the culture between management and the board.

"It's important to ensure you have board members who can develop an effective partnership with management and create an environment where a challenging conversation can take place before agreement is reached." Trust is paramount.

"Having trust facilitates transparent and honest communication and I believe this provides a better result."

Find out more about starting a board