An outside board of directors is an essential ingredient in the success of most family-owned businesses. Many business owners have a board of directors as a legal requirement, yet most receive very little useful advice from their boards. Boards remain one of the most under-utilized assets in business today; whether the business be a global corporation or a small family-owned business. While you may bristle at my judgment that you receive little useful advice from your board, I am basing it on my experience in working with corporations and family-owned businesses since 1979.
Good boards are indispensable. Good boards provide a business with sound counsel, direction, a workable strategy, accountability for the mission and the results of the business, leadership. a review of senior management's performance, a sounding board for the CEO, a vehicle for planning, and a means of ensuring that succession planning occurs.
Boards, however, do not work well when they are populated by friends, the spouses of customers, relatives, golfing cronies, your managers, "loyal" customers, doctors, attorneys, investors, your auto mechanic, Henry Kissinger, Peter Lynch or retired plumbers.
Boards work well when the directors consist of non-self-serving, risk-taking peers who are actively involved running their own business(es) and possess the skills and experience that will benefit your own organization. Risk-taking peers provide business owners with the best objective advice available in the marketplace.
A board that primarily serves as an extension of your ego is useless at best, and destructive to the future success of your business at worst. No well-run business can operate over an extended period of time without periodic, critical reviews of both the performance of its executives and a review of their plans to meet the challenges that they will face in the future. This is one of the invaluable functions an effective outside board of directors can serve. Every CEO, every president and every business owner needs a competent, hard working board to challenge, support, enforce, think with, and monitor his/her plans and actions. Good boards exist, however, only when the CEO, president, or owners want them to exist.
The need for control prevents many leaders and/or owners from creating and utilizing an effective board. I have heard numerous owners explain that a functioning board of directors will diminish their flexibility and create a rigid structure that will hamper their business decisions. Upon inquiry, however, it turns out that their opposition to an effective board rests on not wanting to lose control. The irony of this is that by not seeking and obtaining the best objective help possible, the likelihood of a business getting out of control is a great deal higher than the owner may have suspected.
Every business leader and/or owner needs real, honest, informed and concerned help from people who are not self-serving. Business owners and executives alike tend to over-rely on the advice they get from self-serving advisers, such as attorneys, accountants and hired consultants. The only people you can depend upon to be objective, courageous and honest with you are your outside directors whose sole purpose is to assist you and to assure that the business thrives in the future.
If you don't know how to share your problems or to ask for help and share your dreams, you can and should learn to do so soon. If you can't or won't do this, then you ought to step down as chief executive officer or president. The continued integrity and success of your business depends upon your willingness to share your problems and to get the help you need.
How do you know if you're ready for an effective board? There are few rules of thumb that can be applied that will indicate to you your readiness for an objective, non-self-serving, outside board of directors. First, your business is a going concern - it's successful. Second, your management structure is reasonably stable - there are defined duties, roles and responsibilities. Third, ownership can be separated from management. Fourth, management is competent. Fifth, the owners of your business want a bard and will use one. Directors can only be effective when their authority is accepted and respected by the owners.
Those of you that are ready for an effective board, however, may be faced with a significant problem. While you'd like to have an effective board, you are now saddled with a board that is not providing you with the help you need. This is a problem that neither time alone nor wishing will solve. In the October issue of Kansas Business Report I will discuss how to address the issues related to a non-functioning board as well as how to make the changes that will result in an effective board of directors for your business.