There’s a common misconception that associates boards only with large publicly traded companies. This keeps many entrepreneurs and small businesses from enjoying the benefits of having a board of directors. Here are key reasons why every organization, big or small should consider setting up a board of directors.
Skills and expertise
A well-constituted board will have individuals with varied skills and expertise which complements the founder’s own skills for more effective running. No matter how skilled and knowledgeable you are, there are limitations to what you know. A board broadens the skills you have access to you. The board’s contribution is also not limited to their immediate skill set, it also includes contacts and networks that can be beneficial for a business, large or small. When constituting your board as a small business, go for a diverse group of experts drawn from a wide pool including strategy, finance, legal, marketing, ICT, and more. This knowledgebase will prove helpful when making decisions and testing strategies, keeping you from making costly mistakes and leading to overall better business performance.
Improved credibility
Having outside expertise improves your company’s credibility in the face of investors and lenders, improving your access to capital. It demonstrates that you are committed to good governance and compliance and are not just running a one-man show. A board with members who have financial expertise and are respected in their field can come in really handy. Ideally, a board is supposed to act independently in the best interest of the company, making ethical unbiased decisions. Having one makes the organization look trustworthy to investors and potential partners.
Improved accountability
It can be incredibly beneficial to have somebody to report to as a small business owner, someone to be accountable to. Knowing that there are people you have to report to about some strategic decisions that need to be implemented or even financial decisions and expenses, can help keep you on your toes and accountable.
Tips for constituting a board of directors
- Develop an articulate vision/mission/purpose statement for the board and your business and find people whose interests align with yours.
- Think long-term, selecting people who can help govern and guide the company you aspire to be not just the small one you are now.
- Determine what skillset is important to you and your organization and find people with those skills. Don’t just put your friends and family on the board.
- Develop clear roles and responsibilities for the board.
- Build a culture that invites debates, not a group of yes-men.
- Consider setting it up so that decisions are based on consensus, not majority voting.
- Make it diverse with a wide range of skills and expertise and diverse backgrounds.
- Research remuneration so that you can compensate the people who are offering you expert guidance and advice.
- Remember that the CEO reports to the board and be ready for that challenge and the enhanced discipline it requires.
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