When to form a company board
A board can provide fresh perpectives and new ideas for a business to grow.
In the early stages of a business's life, it can grow successfully under the management of the founders alone.
But as companies get larger, the founders need to bring in people with expertise in a range of areas to help oversee the more complex business. This is where a company board can be helpful.
The role of a board
Kylie Hammond, of advisory firm Board Portfolio, says company boards have several functions, not least ensuring that a business can continue to thrive.
“Having an external perspective and a range of directors who've been through a range of different economic cycles could help open up new perspectives and new ideas on ways the business could grow,” she says.
Being a business owner can also be a lonely experience. “There aren't a lot of people you can confide in, so a board also supplies you with some support and it might challenge you thinking about the way you can grow.”
Another important role for boards is succession planning, an area that many small to medium businesses often ignore.
James Beck, managing director of Effective Governance, says that along with guiding the strategic direction and developing an appropriate chief executive, boards need to oversee their company's compliance with laws and regulations such as workplace health and safety.
“It's about making sure that you have good governance processes in place to deal with compliance activities,” he says.
Beck cites British research that shows firms with good governance can add up to 18 per cent to the profits.
“If you don't put good governance in place you become a basket case.”
Who should have a board?
If a business has a range of shareholders, they can elect the board and it is the board's job to act in their interest.
Boards have significant power and make major decisions affecting a company's future. This can be difficult to accept for a business owner or manager who has previously run their company as they see fit. One solution is an advisory board or council, which has outsiders to guide and advise the company like a regular company board without the decision making power.
Beck says there are no rules, but as a general guideline any company with revenue of $10 million or more should consider setting up an advisory board. Once a business has annual revenues of over about $100 million it should have a board.
Who should be on a board?
Boards should provide honest, impartial advice from several different perspectives, so there's little point in having a company board stacked with friends and associates. “What you see a lot of when advisory or formal boards are formed is a bunch of people that the owner or shareholders know and like, and they're just like-minded people around a table,” says Beck.
A board should have a range of skills, with members who have relevant experience. “If we're having a strategic discussion about, let's say, moving to China, you'd expect to have somebody on your board with experience of setting up a business in China,” Beck says.
The Australian Institute of Company Directors, which provides education for directors and advocacy on their behalf says preparation is the key to successful board meetings.
“The chair works together with the CEO and company secretary to create an agenda which focuses on decision making for significant issues but which also allows time to discuss other items,” the AICD says. “While there is no legal requirement to detail the business to be covered in the notice of meeting, inclusion of the board papers with the notice will allow directors to adequately prepare.
How to run a meeting
The AICD says the chairman should use a running sheet to ensure the meeting runs efficiently and time is given to the most important issues. “There needs to be a balance between encouraging participation while not hindering discussion and seeking to keep to time,” it says.
Kylie Hammond says that while board meetings need to be run formally they shouldn't slavishly follow a meeting agenda and losing sight of the bigger picture. While the board has some administrative and compliance matters do deal with, they don't really add value to the business, so they should be dealt with quickly.
“Where a lot of board meetings go astray is they don't actually focus on the really important issues,” she says.
Structure the agenda around what are the pressing issues for the business and where the board can add the most value, Hammond says. “The CEO prior to a board meeting should say to a board 'these are the three or four pressing issues and this is where I need your input',” she says.
The key to a good meeting is to have “robust discussion” about the main issues facing the business. “If you've got a good chairperson managing those meetings they can draw out and facilitate those discussions and allow the various people around the table to have their say,” says Hammond.