Board of Directors

The Role of the Board of Director’s – Small Business Needs Experienced Guidance

In general, the board’s key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs and to satisfy the appropriate interests of its shareholders and stakeholders.  An owner of a growing small business has a great deal on their mind and is usually consumed with the business at hand.  A Board of Directors may not necessarily be on of their most pressing issues.  Well think again, it should be.  As business expands and matures, so does its need for involved direction and experienced guidance.  These are elements that a Board of Directors can provide.
Here are eight issues to bear in mind when considering a Board of Directors:

1. Do you really need one?  This questions is not always easy to answer. It’s essential that you think about the areas in your business where you may need help or input—such as vision, mission, values, strategy, structure, finance, management, risk control. Target potential problem areas and conceptualize how a board may help.  Also to be considered, what does the presence of a board mean for your company’s image. Having an independent Board of Directors is generally considered beneficial to prospective investors. Independent directors can oversee auditing and can be beneficial in preventing management abuse and corporate fraud.  An exception: Corporations are required by law to have a Board of Directors, although, in many states, one director, often the owner, is all that’s required.

2. What sort of board is best? How binding do you want your board’s role to be? Many small businesses maintain advisory boards for feedback only. That may be adequate for some businesses, but a formal Board of Directors carries greater clout. If it’s a legally formed board, it assumes a fiduciary responsibility for how the company is run. That can boost a sense of responsibility to board members, but it has a downside: Formal boards can outvote you on key decisions.  As principal shareholder, you can often override them, but that will only cause the best directors to resign. Go with an advisory board if you want advice but don’t want it mandated.

3. Whom do you choose? Another question without a single defining answer is whom do you choose to serve on your company’s board? One company’s needs differ from the next. Here are a few things to consider: If you aim for diversity on your board—from gender and political preferences to professional experience—you will help to ensure a diverse set of skills, expertise, and feedback. Consider a broad range of people, including attorneys, CPAs, fellow executives, educators, and even directors from other boards. Look for expertise in the kind of business you operate.

4. Avoid mirror images.  An effective board is comprised of people of diverse backgrounds and viewpoints that can differ from yours. This board shouldn’t be the least bit afraid about offering guidance and feedback that may be disconcerting. A solid Board of Directors is comprised of people who don’t think like you and who are not afraid about standing up to anyone with their ideas. You need strong-willed people with a great deal of experience.

5. How will the board function? Once you’ve decided on a board, you need to address the mechanics of its activities. Figure out the areas of your business that need a board’s involvement. Are they company audits? Help with raising outside capital for a project? Or management decisions?  Create an accountability structure between the executive team and the Board of Directors.  Each needs to be accountable about implementing what’s discussed. The worst thing is to let your board meet and talk, but nothing actually happens.

6. How often will the board meet? The frequency of board meetings will differ from one company to the next. Although the average is every quarter, structure your board’s schedule to address your needs. If issues are regularly occurring that require the board’s attention then monthly meetings may be appropriate. No matter how often, take the time to prepare for each meeting. It’s also critical to set up a thoughtful agenda for the board to hit issues that warrant attention.

7. How long should they serve? Experts suggest that terms for board members (or the boards themselves) only run from one to three years.  Stagger terms so that you don’t have too many board members leaving in the same year.

8. How much do you pay board members? Again, size, frequency, and other variables dictate how much you should pay your Board of Directors. But at the very least, look to pay your directors a per meeting fee of several hundred dollars plus some sort of annual retainer fee. Rule of thumb: The bigger the company, the greater the importance of a board member’s role so you’ll have to pay them more.