Even a Small Private Company Needs a Board of Directors

 
 

governanceA few weeks ago, we wrote a blog regarding the responsibilities and liabilities of members of a Board of Directors.

All of those responsibilities may lead you to conclude that a board of directors is something only a large company with significant shareholder’s needs.

Nothing could be further from the truth. A great many small companies can benefit from a Board of Directors.  

You Are Required By Law …

And if you structure your company as a “C” or “S” corporation, you are required, by law, to have a board of directors.  Many small companies address this requirement by having a two person board, which satisfies the legal requirements but not the advantages of a truly functional board. skillsBut beyond that, many smaller companies can benefit from a Board.  Not all small businesses have all of the skills they need to operate effectively, especially if they have rapid growth or a sudden business problem. 

A Board of Directors Can …

A board of directors can help by adding complementary skills and expertise that you might not have in house. A board can also help ensure that you have the right processes in place, focus your strategy, help raise capital. Effective and networked boards can also help bring in new talent, both at the board and operating levels. But, you might say, I know my business better than anyone.  Except for the occasional problem, what can a group of outsiders bring to my business?  Since most small corporations are owned and managed by the same people or person, independent board members can be invaluable. They look at the forest while the business owner/operator is surrounded by trees.

A New Perspective …

idea-opinionIndependent outsiders can contribute new perspective, experience, support, serve as a sounding board and bring different skill sets.  Business owners/operators, who force themselves to explain and account for key business data and issues to independent third parties, force themselves to take the time to consider the past, present, and future performance, needs and goals of the business.

Owners Are Reluctant To …

Sometimes business owners are reluctant to open decision making to outsiders who are not stakeholders in the business.  One solution is to make board members stakeholders by rewarding their service with small amounts of equity in the company.  Another is to require shareholder approval of certain decisions made by the board. In many family owned businesses, different family members often have differing degrees of ownership and differing roles in the operation of the company.  Questions of management qualifications, business performance, transparency, accountability and transfer of ownership can all acquire an emotional charge that interferes with the success of the business. 

Independent Board Members Can Add …

bigstock-D-Knob-Confidence-Level-46141444-583x437In these situations, independent board members can add to a mutual confidence between stakeholders and management, while bringing differing skills to issues. As was pointed out in our last blog on this topic, directors, by law, have a fiduciary responsibility to the corporation.  They must act with loyalty to the company and in a manner calculated to serve the best interests of the corporation. In doing so, they may consider the interests of the company’s employees, suppliers, creditors, customers, economic conditions and the long and short term interest of the company and its shareholders.

“I Wish I Had …”

We have had clients tell us: “I wish I had done this years ago.” I have a great board and they are really helping me grow the business. Yes, it requires some initial work, thoughtful planning and the selection of experienced, trustworthy people. But they are out there and willing to help. What are you waiting for?