Good Governance and the Board selection process

A lot of stakeholders have lost complete confidence in the role of Boards due to some of the horrid scandals that time has come to see mainly due to the lack of oversight and independence by the one function that is designed for oversight, the Board of Directors. It is not uncommon for boards to be created without any necessary advice from consulting firms. Regardless of the budget and availability of funds, it is always wise to identify a trusted advisor that can analyse your organisational structure and operations and then guide you through the processes of selecting an appropriate Board.

Good governance

Board Directors owe a fiduciary duty to the company. They must act honestly, in good faith and in the best interests of the company and ultimately the shareholder. A board provides good governance when it is able and willing to ask the right questions at the right time and to provide good advice while demonstrating confidence in the company.

But good governance by a board of directors is much more than governance. Good governance includes the following:

  1. Vision: envisioning the future and developing the mission
  2. Direction: setting goals and policies
  3. Transparency: maintaining open processes, shared information, effective communication standards, and regular and meaningful reports
  4. Guidance: providing advice and direction
  5. Due diligence: getting inside the metrics and judging the risks involved
  6. Commitment: being engaged emotionally and intellectually to the venture’s course of action

Due diligence

The exercise of due diligence is one of the keys to good governance. The exercise of due diligence requires that Directors understand and be familiar with:

 

  • the company’s governing documents;
  • the company’s current and expected financial situation;
  • the guiding legislation and appropriate regulations surrounding the activities of the company; and
  • risk assessment and risk management (The organization’s actions and decisions need to be judged with regards to the possible risks involved).

Selecting an ideal Board

The selection process for an ideal Board requires careful monitoring in order to select board members who will bring value to the table. Along with the type of board to set, many questions usually come to shareholder’s minds when setting up a Board, how many are to sit? What talents do I require? As a shareholder can I safely trust the board to run the business?

The following are points a shareholder is to consider when setting up a board:

  1. Create a diverse board. In general, we tend to surround ourselves with people that look like us, think like us, and who value the same things we do. Establishing a diverse group of people with different backgrounds will provide you with unique perspectives that you may not have otherwise had.
  2. Have virtual board members. One of your board members must be a virtual person, not as in “remote,” but as in someone you perhaps don’t even know. This can be a figure in history, a relative that is no longer around, or someone you admire but have never met. Whenever you’re faced with a tough decision, just imagine what this virtual member would say about your situation and what advice they might offer.
  3. Have an odd number of board members. Ultimately, you are the one to make the final decision about your personal or business choices, but in order to make the best decision, you need to have clear feedback. More than likely, there will always be a side or opinion that wins out if you have an odd number rather than an even number of votes.
  4. Invest in your board. Make it a priority to meet with each of your board members regularly about your decisions in life. Make the financial investment of buying them lunch or dinner, but make sure you show up prepared to know more about them.
  5. Always be looking for new members. Once you make a decision to cultivate the best possible board that you can for yourself, always be on the lookout for new board members. Sit down regularly to evaluate who is currently on your board and who might be a good addition or substitution based on new contacts you may have made.

 

Below is a list of values to consider when searching for the ideal board member:

  1. Innovators/creative problem solvers

No matter how successful your product/service is, you will need to cannibalise it at some point or your competition will do it for you. Creative thinkers come up with new and alternate solutions that help drive companies to new heights.

  1. Challengers

Every board needs someone to play devil’s advocate. If assumptions aren’t challenged, then they will be exploited by the competition. You need someone to put out potential weaknesses.

  1. Strategic thinkers

Leaders don’t see all of the possibilities because they are in the middle of the forest. They are dealing with the present. There needs to be someone who looks at the field and sees all of the opportunities.

  1. Diversity

This means people of different ages, ethnicities, skills, experiences and educational backgrounds.

  1. Sales experience

Most leaders come from the product development, financial or marketing side of a business. Having someone who has built a sales force, hired sales executives and was on the front line selling can accelerate growth.

  1. Marketing experience

Though many leaders have marketing experience, having an experienced marketer from a direct marketing or advertising firm can be of great value in thinking through how to build your reputation and brand.

  1. Industry experience

Knowing the industry is important for understanding the competition and getting an outsider’s perspective about what differentiates your business.

  1. Capital-raising experience

Raising capital from angel investors, venture capitalists, corporate investors, banks and factors requires knowledge about how to structure deals along with introductions.

  1. Finance experience

Most organisation have experienced CFOs whom are knowledgeable on funding sources, vendors and figuring ways to reduce cost, but to have a finance expert to discuss how to leverage assets and debt to scale the business or negotiate with creditors can help the company better manage its cash flow.

  1. Leadership development

The stronger the management team, the better positioned a company is to take advantage of opportunities. Good leaders need to understand how to develop talent to maximize the company’s potential. Attracting a board member with experience in cultivating leaders can make the difference between success and failure.

 

Who don’t you want on your board?

  1. Professional service providers – Having your lawyers, insurance brokers and accountants on the board is basically having board members who will never question your strategies and decisions.
  2. Inexperienced family members – Seems obvious from the word “inexperienced,” but there are leaders who look at the inexperienced as controllable.
  3. Someone who won’t or can’t provide sales introductions – Counsel on how to run your business is easily bought or provided for free, but access to potential accounts requires leveraging professional relationships, and that should be an expectation of every board member.

 

Once a Board has been set up, there remains a second and equally vital stage to be conducted, Evaluation. To avoid company meltdowns there is need for regular evaluation of the Board in order for roles and responsibilities of the Board to be well aligned and in context with the business goals. However, with the changing times, is the role of the Board to change also? Let’s discuss this in our next article.

 

Good Governance and the Board selection process

1 Comment

  1. good article

Leave a Reply

Your email address will not be published. Required fields are marked *