A board is:
- a group who meet regularly to look at the performance and strategic progress of the company
- at least one independent director and other owner-operator directors (executive directors)
- a group who can separate themselves from the day-to-day operations and take a birds-eye view of the business
- a group who can debate the difficult issues and come out with a clear decision for the future of the company
- ultimately, a group who guides, and is committed to, the company.
Benefits of having a board
- executive directors (those who work in the business) are often in a better position to evaluate the performance of the organisation because of their vast experience and inside knowledge
- non-executive and independent directors are more likely to be objective, and look at the company without business-owner emotions
- being able to successfully navigate the shoals of company law, whilst keeping an eye on the horizon – big picture thinking – is part of an experienced director's DNA! For busy SME owners, it's easy to lose sight of anything other than the demands of the day
- setting up a board or appointing non-executive directors will ensure the company performs and grows, with no curved legal balls tossed your way.
Both advisory boards and boards of directors should have a similar structure – a chairman to facilitate, and formal procedures for conducting meetings.
Board vs management
An effective company must ensure the relationship between the board and management is complimentary rather than adversarial. This is one of the most important relationships within a company, so make sure it is well managed.
Separating ownership from control
It's easy to get confused with the difference between governance and management. The board is in charge of governance of a company which seeks to ensure the smooth running of a business by making accountability and oversight the core of their workings. Governance also ensures that the business has a future-facing strategic plan.
This is where management comes in. They take the strategic plan and work to implement it into the day-to-day operations of the company.
Both roles are vital and complementary.
The difference can get blurred with SME's when:
- there are only one or two directors
- the same directors are founders
- these directors also manage the day-to-day operations.
Which hat to wear?
Executive directors need to think about the hat they have on:
- for operational aspects an executive director wears the management hat
- for board meetings, an executive director will need to switch to the more strategic cap (ie governance).
This is where an independent director can help guide your board discussion, and make this delineation clearer.