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Strategic Planning

Does Every Organization Need an Effective Board?

January 24, 2014 by Dr. Jon Warner in Strategic Planning

Does Every Organization Need an Effective Board?

Many small businesses think a board of directors is only useful for large corporations with multiple shareholder investments and/or to oversee large-scale or very complex decisions. However, in truth, almost all businesses, no matter what the type or size, benefit from a board of directors. In broad terms, a board will help a CEO and senior leadership team to get outside the limited perspective of day-to-day business decisions and to look at issues in a bigger-picture, longer-term and more strategic way.

So why should all businesses have a Board?

Not all small businesses have the skills they need to operate in efficient and effective ways, (and this is especially true if the business is new or young). A board of directors (whether this is just a couple of people or several) can immediately help by adding to the knowledge and skills that exist in-house. This may be functional knowledge or skills (in finance or marketing for example) or experience of related industries, for instance. In addition, a Board can also help any business ensure that it has good processes in place to find and win customers, deliver products or services well, manage growth, focus business strategy, manage finances and cash-flow and even raise additional capital, where necessary.

In addition to the above, a well-chosen Board can also help bring in new management people or talent where this is necessary—this may be new people with special skills or to help succession planning.

More than anything, a board of directors is there to help the day-to-day running of a business. A board can give almost any organization of any size and type the opportunity to step back from the day-to-day tactical and operational demands of running a business and help executives to see the “bigger-picture” or to focus much more on the long-term future.

Who should be on a Board?

Directors with specialized expertise such as law, finance, sales and marketing are extremely helpful in providing guidance, support and advice to a CEO and reporting team of executives in any business and work to help develop overall business plans, polices and tactics which help the business to get to better places. For this reason, it’s useful to appoint individuals to a Board who have a mix of skills and knowledge, including knowledge of any new or different markets in which the business is interested.

The most effective boards are comprised of diverse, confident and mature individuals with their own independent viewpoints. As a result, a business needs board members who are fearless about offering advice, guidance, feedback or even constructive arguments about strategy, when this is necessary.

How to Recruit Board Members

Although this will depend on each individual business, and its size and type (and even state of maturity) ideally the process should begin with the organization asking itself what key skills or knowledge is most in need or even which role(s) most need support (for example, the CEO or functional managers)? This may therefore be that the greatest need is in strategy, capital raising or public relations in terms of knowledge or skills, or in the areas of finance, marketing, technology, human resource management, in terms of functional skills and knowledge. In some cases you can talk to other companies in your industry or area to find potentially suitable individuals to become a director, or use bodies such as a local chamber of commerce to identify possible candidates or network with potential candidates.

Of course, getting anyone to join a Board needs a proper recruitment plan with a job description or specification for the role or at least some guidelines. You should also be prepared to explain the responsibilities of the board as a whole and the expected time commitment of each member involved (a two hour meeting once a month, one a quarter etc.). Finally, you will need to think about compensation. Most board members will want to receive board fees for their time but this can vary greatly according to the seniority of the person, whether or not they are bringing direct or indirect investment to the business and how much time they will be committing. In all circumstances however, this needs to be budgeted up-front and entirely clear before you appoint someone. Once this is all done you can ultimately check references on the possible board members just as you would for a senior executive appointment.

Could an Advisory Board Be a Better Option?

An advisory board is quite different from a board of directors and for many businesses may be a better option. A board of advisors is less formal than a board of directors and can include any number of people (such as local leaders in non-competitive local industries or professional coaches or mentors who often have a relationship with the business CEO or senior executives already). In addition, advisors can be brought in for shorter periods of time and with very narrow or specialist skills to solve a particular business problem (such as introducing new technology or expanding into new international markets).

Advisory board members people will also need to be recruited carefully however and paid for their time and contribution just as with a formal board. However, a board of advisors can be appointed first and even co-exist alongside a board of directors at a later stage when a business is mature enough.

Summary

There are many advantages to setting up a board of directors, either formally and/or as a more informal advisory board. Apart from providing a much higher level or more strategic overview of the business, it typically helps to take an enterprise to the next level in its journey in a well-thought through and planful manner.

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About Dr. Jon Warner

Dr. Jon Warner is a prolific author, management consultant and executive coach with over 25 years experience. He has an MBA and a PhD in Organizational Psychology. Jon can be reached at OptimalJon@gmail.com

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About the Editor and Primary Author

Jon Warner

Jon Warner is an executive coach and management consultant and in the past has been a CEO in three very different companies. Read more

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