Is your business ready for a board? Henri Eliot has some tips for getting the right people around the table.
When is it the right time?
There are two schools of thought on when a company should form a board. The traditional view is based on size. As the business grows and looks to raise capital, the board should be established with the right skill mix to protect shareholder interests.
The emerging view for small and medium sized enterprises (SMEs) is based on growth and ambition. Here, the startup or SME establishes the board early to help shape strategy and help founders avoid common early stage business mistakes. The board is viewed as strategic. A number of successful New Zealand technology startups - Xero, Aptimize and GreenButton, to name a few - established a board from day one, which helped lead to great success.
What is the best skills mix?
The board needs to have a broad mix of skills, knowledge and experience. Different directors have different skills and backgrounds. The goal in selecting directors is to build a mix that can work as a well-rounded team of people, each with an appropriate range of experience. In selecting a director, the board should consider the skills, knowledge and experience needed to govern the company now and in the future.
While specific skills required by each board differ, there are some core skills that should be represented on a every board, not necessarily in one person.
Strategic expertise – the ability to set and review strategy through constructive questioning and suggestion;
Financial literacy – the ability to read and comprehend the company’s accounts and the financial material presented to the board, and understanding financial reporting requirements;
Legal skill – the board's responsibility involves overseeing compliance with numerous laws; Managing risk Managing people and achieving change;
Experience with financial markets; Industry knowledge – experience in similar organisations or industries;
Understanding stakeholder expectations.
If an organisation has special needs or exposure to a particular stakeholder group, it makes sense to include a director who has experience in that area.
For example, a company that spends a great deal of time doing business with government may need someone with first-hand experience of the political process. However, care should be taken by boards and individual directors to avoid adopting the specialist advisor role.
The way forward
In an increasingly complex and unpredictable business world, the board must be strategic about board structure and composition. Building a qualified, effective board is a continuous process, not a one off proposition. Invest in a sustainable framework that can be used now and into the future. Draw on outside experience and objectivity to help drive a disciplined process, to think originally and to build credibility with all stakeholders.
For a company focused on market agility, innovation and growth, senior management should be proactive in providing resources and support to the process.
The board and the leadership team should think carefully about the future and whether a particular group of directors is a good strategic fit. The leading approach today is to take a proactive and constructive stance about who’s in the boardroom. Go after the best people you can find based on your ideal composition or needs matrix.
Also, make it clear that continued appointment as a director will be based on demonstrated commitment to active, informed and engaged oversight. Finally, your directors should be passionate about your business.
Henri Eliot is chief executive of Board Dynamics, a consultancy which provides strategic advice to directors and boards throughout New Zealand and Australia.