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Is Your Board of Directors Useful?


By Margaret Heffernan, Entrepreneur and Author

Although private companies have no legal obligation to create advisory boards, many of the most successful companies have them. Primarily this is because they’ve taken investment from individuals or firms for whom oversight and involvement is part of the price of the deal. But even firms owned wholly by their founders seek advice and input from others outside the business who may have more insight or experience.

I’ve sat on many such boards, varying from the profoundly helpful to the utterly useless. To help yours be like the former, in three posts I will summarize three crucial points: the role of a board, what directors should (and shouldn’t) do, and the job of the chair.

Why bother?

It’s lonely at the top. However brilliant, energetic, and successful you are, you can’t know or consider everything. Moreover, most leaders recognize that there are a host of issues that they can’t fully discuss with their management teams. I usually found that I spent a lot of time confiding in (and ranting to) my husband; others I know choose parents and siblings. But my husband is a scientist, interested but wholly inexperienced in business; family members want to be supportive but often lack insight or professional experience. That’s what a board is for: to provide (relatively) objective feedback: on your performance, that of your management team, and the company as a whole.

Extra antennae

Boards can provide the perfect forum in which to test your strategic thinking.  How far are you in tune with your market, with developing social, or technological trends? In this capacity, your board members are like antennae: collecting a range of signals which you might easily miss. It’s the easiest thing in the world for leaders to get so caught up in the intricacies of execution that they miss galvanic trends. Google was slow to take social networking seriously; beverage companies missed the market for water, and then for vitamin water, for years.

Mini market

When it comes to new products or strategies, your board should also represent a sufficiently relevant cross-section of your market that they can give honest feedback that is a plausible stand-in for your market. Would the directors, or their businesses, buy from you? Is the offer or product compelling enough? They may also be blunt about your competition in ways that you find difficult. Defensive thinking is a normal but dangerous quality in leaders and you need people around you prepared to tear those defenses down.

Editors

Many companies—especially young, ambitious ones—try to boil the sea with a spoon. Full of ideas, and imagining that energy and creativity are enough, they want to expand before securing any meaningful positioning. Board directors should hold their feet to the fire on this: focus is a distinguishing mark of successful companies, while strategic sprawl characterizes rooms full of brilliant individuals who never quite comprise a company. Staging growth and expansion at the right time requires immense discipline and oversight helps.

Avoid the weeds

Great boards don’t just know what they’re there for; they also know what not do, chief among which is operations. If the board is inclined to get highly involved in day-to-day business dealings, operating as backseat negotiators or executives, everyone will lose their way. The most fundamental advantage bestowed by a board is its objectivity. Once directors get involved in execution, that objectivity gets lost and you will find that you’ve acquired a second—but highly unaccountable—management team. Seasoned board executives understand these boundaries but new ones may not.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides professional CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices in Charlotte, NC, the Triangle, the Triad, Southern Pines, and Wilmington with a team of more than 30 professionals serving more than 100 companies throughout the region.

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