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Why Every Company Needs a Board of Directors

January 31, 2018

Apple founder Steve Jobs once observed that, “Everybody expects me to come up with all the ideas.” He then countered with, “But that’s not how you build a strong company.” Well, if the tech world’s preeminent entrepreneur knew he couldn’t do it alone, what makes any of us think we can?

 

Trouble is, asking for help in running your company is not always an easy path to take. Founders, moguls and CEOs all have one thing in common – they’re notoriously strong-willed. It’s simply the nature of the beast; anyone bold enough to venture out on his or her own is likely to struggle with the concept of accepting advice from outside sources. That makes any decision to implement a board of directors difficult.

 

CEOs will typically worry about loss of control and debate cost and effort but, the fact is, having an active board can afford significant advantages, not the least of which is providing an objective view of the company when management is too immersed in operations to see its vulnerabilities.

 

A solid board of directors focuses on the success of the organization and protects its culture and values. It drives performance factors by forcing clarity in strategy and fostering momentum in profitable directions. It prioritizes initiatives and resources to help guide the organization toward achieving critical goals in a timely manner, and eliminates distraction by reconciling differences between management and equity shareholders.

 

Boards reinforce accountability and urgency across the enterprise, provide a key sounding board to test ideas, and can offer “cover” for difficult strategic decisions. They amplify business opportunities by extending networks, delivering access to places, people and expertise you couldn’t otherwise reach, and establish your immediate legitimacy with customers, associates and stakeholders. With a board of directors in place, the marketplace knows you’re serious and professional.

 

The most effective boards comprise diverse, strong-minded individuals with unique viewpoints who can confidently offer advice, guidance and feedback. In selecting your board, it’s important to also:

 

  • Invite people who are financially independent from you and your company;

  • Find visionaries who agree on the path the company is headed; and

  • Add trusted professionals who know things you don’t.

 

Boards work best if they will challenge you, so don’t squander your important selections by setting up your panel with a bunch of “yes” people.

 

Of course, the decision to assemble a board in the first place is not always entirely up to you. Some types of organizations have no choice in the matter. While different governing bodies may have distinct guidelines for organizing S corporations and C corporations, for instance, all for-profit and nonprofit entities are required by law to maintain a shareholder-elected board of directors. LLCs are not obligated to have a board, but can choose to elect one if members want.

 

There’s little question that having a board of directors can help extend your corporate vision and propel meaningful advances in your organization. Startups or small businesses, however, may find that a less formal advisory board, with its greater flexibility in structure and management – and less fiduciary responsibility – is more suitable to their needs.

 

As with all entrepreneurial choices, it’s an individual decision whether to invest the energy and resources. Contact Kaplan CFO Solutions to see if establishing a board is right for your company.

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