By Emmanuel Zvada
BOARDS must be at the helm of every company, making important decisions. The board of directors is the most powerful group, having the power to internally guide and influence all other organisational actors.
In fact, the principal work of boards revolves around complex decision-making. Board members should be confrontational but at the same time understand the need for teamwork so that they can give direction to the company.
Boards are also expected to be independent and act only in the interest of your company, free from conflicting interests that can compromise their judgment and be able to take a solid stand in the face of opposition.
What is a board of directors?
Boards of directors are groups of individuals within your companies, elected or appointed as representatives of shareholders or owners to establish corporate governance and oversee organisational strategies.
The board plays a pivotal role in all aspects of corporate governance in organisations. It is responsible for protecting shareholders’ interests, establishing policies for management, oversight of the corporation or organisation, and making policy decisions.
For this to be a success, organisations need to have the right people on the board challenging, inquisitive and with experience of the industry they are in.
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Why shareholders fear having boards of directors
Establishing a board of directors may not solve the problems you are hoping to solve. If you fill your board with your friends, buddies or family, you may not be able to get objective feedback.
Mostly shareholders elect such people due to their fears. A common misconception within closely held companies is that having independent directors will lead to loss of control. Actually, control is not sacrificed.
Independent directors enable you to have access to more knowledge, use your resources more wisely and leverage on as much experience as you possibly can.
Making an effective board
Invite people who are financially independent from you and your company. Your board members should not rely on you financially or “need” you in any way. Again, the best board members must be truly independent to be effective. In addition to that you should look for people who are not afraid to voice their opinion.
Essence of building a skills-based board
Skills and knowledge are needed to operate effectively in a dynamic environment and should be available in a well-rounded board of directors, which allows the executive to focus strategically on the business.
What is important for a board is that it should have a good understanding of the skills it has and skills it requires.
Where possible, a board should seek to ensure that its members represent an appropriate balance between directors with experience and knowledge of the organisation and directors with specialist expertise or fresh perspectives. Directors should also be considered for the additional qualities they possess, their “behavioural competencies”, as these qualities will influence the relationships between the board and management and between directors and key stakeholders.
Dilemma of having dummy directors
Dummy directors appointed for legal obligation serve limited purpose or no purpose at all. The biggest mistake founders make is not having an active external board.
External directors’ job is not to manage the company but to keep the company running by setting management and organisational policies for the organisation.
Their experience should bring in knowledge and skills to grow the organisation. Dummy directors vote in favour only. Companies are likely to make mistakes when they have dummy directors.
Not having a board of directors is one such mistake and I haven’t seen companies without a good board succeed. Good governance must be embedded in a company’s values.
It provides mechanisms to ensure leadership, integrity and transparency in the decision-making process. The board should be small enough for efficient decision-making and it should be large enough for its members to contribute experience and knowledge from different fields
Why having a board is key to organisational success?
It is generally accepted today that the board has a significant role to play in the formulation and adoption of the organisation’s strategic direction as well as improving performance. The extent of the board’s contribution to strategy will range from approval at one end to development at the other so that maximum performance is attained.
Monitoring organisational performance is another essential board function as well as ensuring legal compliance.
The board ensures that corporate decision-making is consistent with the strategic planning of the organisation and owners’ expectations.
Building and maintaining an effective governance infrastructure
A company’s corporate governance structure is critical for its successes. Think of corporate governance as a system of rules, principles and processes by which your company is directed and controlled.
Since the board is ultimately responsible for all the actions and decisions of an organisation, it will need to have in place specific policies to guide organisational behaviour.
To ensure that the line of responsibility between board and management is clearly delineated, it is particularly important for the board to develop policies in relation to delegation.
Poor internal processes and procedures can lead to inadequate access to information, poor communication and uninformed decision-making, hence the board makes sure that this is available via the management for the benefit of the company. A strong and effective board of directors is an invaluable asset. You can work smarter and be better prepared than your competition.
Board as a strategic weapon
Building a strong board of directors can have powerful benefits for your fast-growth software company. The right board can help drive incisive advice on strategic decisions and steer you in the right direction with the right experience and contacts. Like all business decisions, it is up to your company to decide if it wants to invest resources towards the establishment of a board of directors and leverage on this highly underutilised business tool.
- Emmanuel Zvada is an award-winning Most Fabulous Global HR practitioner 2020, HR disrupter and trusted coach. He writes here in his personal capacity.
