Even with great leadership, as your business grows you may notice the increasing tension between working “in the business” – your day-to-day operations – and working “on the business” – developing future revenue strategy, creating policies to support business performance and dealing with compliance issues.
Eventually, your company will benefit from ‘outside’ executives and/or ‘independent’ directors whose experience will help you work “on the business”. They can bring valuable experience to guide your organization through different revenue growth stages.
There are many names given to this group of executives which includes Board of Directors or Advisors, Board of Governors, Board of Managers, Board of Regents, Board of Trustees, or Board of Visitors. and is often simply referred to as "the board".
Lodestone Global recently published data that explores the financial benefit of implementing a board. 87% of survey participants responded their companies saw increased revenues and 81% reported increased EBITDA after implementing a board.
From a more progressive perspective, the Board is responsible to the stakeholders. This can include everyone interested and/or everyone who can be affected by the corporation. In a nonprofit corporation, the executive committee reports to stakeholders, particularly the local communities which the nonprofit serves.
Typical duties of a boards of directors can include:
- Establish the organization's mission, vision, and direction
- Ensure effective organizational planning
- Govern the organization by establishing broad policies and setting strategic objectives
- Select, appoint, support and review the performance of the chief executive (of which the titles vary from organization to organization and when necessary, terminate the chief executive)
- Ensure the availability of adequate financial resources to provide for fiscal accountability and formulate policies related to contracts from public or private resources
- Approve annual budgets
- Ensure the organization has sufficient and appropriate human resources
- Set salaries, compensation and benefits of senior management
- Determine and monitor the Organization's products, services and programs
- Review responsibility for all conditions and policies attached to new, innovative, or experimental products/services/programs
- Report to stakeholders about the organization's performance
- Enhance the organization's public image
- Assess its own performance
The Advisory Board's role is not to run the company. This is the role of the CEO and his/her senior management team. The Board's responsibility is to ensure the right team is in place. Advisory Boards that meddle, get too involved or undermine a management team will do more harm than good.
Board members often serve for a two-year term with options to serve additional terms. This varies with each organization. Each board member will often be required to serve on and participate in at least one committee. The time commitment may vary and includes Board preparation, meeting and committee meeting time.
The success of the board of directors depends on the composition, structure, resources, diligence, and authority of the entire board, as well as their working relationships with other participants of corporate governance, including management, external auditors, internal auditors, legal counsel, professional advisors, regulators, standard-setting bodies, and investors.
Boards need to develop procedures for themselves and to also govern relations with their staff, volunteers, clients, stakeholders, and the community at large. "Rules of order" (often based on the parliamentary procedures codified in "Robert’s Rules of Order") are necessary to govern board meetings and other official functions. Download Robert’s Rules of Order Cheat Sheet here >
There are reservations which leads to restricting the existence of a Board of Directors:
- The risk of dilution of authority - (for the CEO, founder or business owner)
- Interference by the board - (in day-to-day business decision-making)
- Potentially time-consuming and costly - (Which limits the ability to either compute or justify ROIs)
Two Types of Boards:
An Advisory Board is a less formal association of individuals. The Board members do not have any fiduciary or legal responsibility towards the owners nor do they have any binding requirements for regular board meetings. The members have a genuine interest in the success of the company and its owner(s).
An Advisory Board primarily advises and gives feedback, but is almost never involved in the decision-making. Members mostly volunteer their time as mentors or in some instances may receive a small honorarium. This structure is best suited for early stage Entrepreneurs and small organizations.
A Fully Mandated Board has the ultimate power and holds fiduciary / legal responsibilities on behalf of your company. The board is fully accountable to its owners and shareholders. Fully mandated Boards conduct regular meetings and are heavily involved in the company’s decision-making processes.
Board members for incorporated companies have a stringent compliance structure put in place by governing bodies from their respective countries. Fully mandated Boards are thus best suited for companies that want to bring in expert trusted advisors who will make decisions and be held responsible for the same.
Recruiting and Selecting:
Traditionally directors are drawn from a pool of former CEOs, lawyers, accountants and financiers. While these are important sources, your company might need other expertise, such as strategy, audit, risk management, IT, human resources, sales or marketing.
Before recruiting people to serve on the board, an organization needs to have a résumé and profile sheet completed by each potential board member. The profile sheet should include their contacts and areas of influence, such as professional clubs and community activities.
When recruiting new board members, go beyond making a list of skills needed for organizational tasks. Board members should not only lend their expertise but give entree into areas of influence for fundraising and marketing possibilities.
Instead of a nominating committee, one recommended approach is to have an ongoing board resources committee. This committee, sometimes called the governance committee or the committee on directorship, should have the following traits:
- It should meet year-round
- It needs to be chaired by the strongest person on the board and comprised only of board members
- Its duties include doing an assessment of board performance—collectively and individually
- It is responsible for developing or refining board position descriptions
- It evaluates the needs of the board and develops a profile of the kinds of people that are needed to fill vacancies
- It works with the board to help find the right people to fill board positions
- It ensures diversity on the board
- It implements, along with the organization’s senior staff members, board orientation
- It is responsible for ongoing education of the board
This is perhaps the most important committee of all, the board resources committee should not be treated as an afterthought.
Value of a Board:
- A think tank. With a medium to large executive committee, an executive director can raise difficult problems not yet solved such as a staffing issue.
- Board extends network. Boards extend connections and give the company access to places and people they can't typically reach. They can make the introductions needed to amplify business opportunities.
- Boards promote accountability. Key managers are held accountable to deliver on their promises to the board. Everybody reports to somebody, and the board reinforces accountability and urgency.
- Boards lend credibility. A board propels company growth by lending credibility to customers, employees and other stakeholders.
- Boards provide “air cover.” Boards can provide cover for difficult strategic decisions. CEOs or key managers can justify tough choices by saying “the board recommended it.”
Starting a board of directors and maximizing its usefulness may not be high on your list, but as your business grows, having an active board can provide significant advantages. It’s also something you may not have a choice about; every corporation is required by law to have a board of directors. You should, of course, be working with your attorney on matters such as these. But whatever the legal requirements, satisfying the laws of incorporation is only the beginning for this vastly underutilized small business resource.
Your board can help develop business plans, handle policy issues and help focus overall business strategy. Directors monitor a company's financial strength and the success of its product and services.
There are many advantages to consider; the only real disadvantage is investing your time and resources in a structure which may not serve your current objectives. At the least, an advisory board can increase your community outreach, while a fully mandated board can give you just the expertise and legitimacy you need to grow to the next level of your business's natural development.
A board is an important resource to developing a revenue growth strategy, If you are interested in talking more about the opportunities, please contact me here >
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