Many entrepreneurs want to stay in full control of their companies and do everything themselves. Which is totally understandable and appropriate if you are happy and content with the stage at which your company is at – we all have different ambitions for our businesses.
But if you want to grow and scale your company, trust me, you won’t be able to do it alone and keep doing everything yourself. You’ll be stressed-out and burnt-out in no time at all!
No matter the size of your company right now, if you really want to grow it, in the long run you will be much more successful if you gather a team of experienced and trusted advisers around you in a structured way. And, if you are a limited company, one of the best ways to do this is by setting up a company board of directors. This can sound quite intimidating at first but it’s a fairly straightforward process when you understand a bit more about what a board is and what it does.
So, what actually is a board?
It’s a group of people (usually between three and seven, made up of executives and non-executives, and including a Chair), appointed as directors by shareholders to run the company on their behalf. Everyone works together to set strategy, allocate capital, manage risk and ensure that the principles of good governance and ethics are applied throughout the organisation (these are the core functions of a board). Put another way, the board is there to challenge and support a CEO to make sure that a company is managed properly.
Importantly, for you as an entrepreneur, your board is a group of engaged people that will work closely with you to build your company and help you to realise your dreams. In larger companies boards are generally quite hands-off, but in smaller companies board members usually are – and should be – much more hands-on, guiding, supporting and constructively challenging you, remembering at all times a board member’s duty is to the company (i.e. the legal entity), not to an individual or a specified person/shareholder.
Ideally you need a diverse board of people – balanced by experience, gender and age – that changes and evolves as your company grows. The support and challenge you need at start-up will be completely different to what you need when you scale-up and different again when you are planning to exit! Think of it as a bit of a relay race when it comes to board members, handing the baton of board support onto another more appropriate board member at the right time.
But it can be pretty scary for an entrepreneur setting up a board. If you feel this way, don’t worry, you are not alone! Many entrepreneurs have a number of fears around dilution of authority, interference in business decision-making, costs and the amount of time involved with having a board of directors, particularly when any new directors are external (i.e. not your co-founders, business/life partner or executives you have recruited). Which is all completely understandable, but by taking time to get the right board you can overcome all these fears and you will soon see there are far more benefits to having a board than not having one. A really good, well-managed and engaged board will greatly enhance your business journey. It’s all about having the right mindset towards what the board can do for you and your company and understand that you are working as a team.
So, what are some of the benefits of having a board?
As a start-up you won’t have all the skills you need and a board can be a cost-effective approach to get what you need e.g. finance, legal and marketing support, as well as strategic input, which is one of the core functions of a board. Board members are also very helpful for effecting introductions to their own network of contacts, mentoring you and bringing a different perspective to your thinking, helping you to avoid group-think.
A board also helps with bringing structure to your processes, policies and procedures. This is also referred to as governance – the way in which you manage your company in the best interests of all your stakeholders (you, your employees, your customers, your directors, your investors, your suppliers and your community). And governance really isn’t complicated, it’s good old-fashioned common sense – are you doing the right things in the right way and being ethical? Does it feel right to everyone?
A board is also great for your personal accountability – you have to be able to justify your actions and report to your board, so it will make you stop and think about what you are doing and why. And it’s also really helpful for credibility – having a board makes you look grown-up and serious, which is especially important when you are fundraising.
So, how do you build a board?
Remember again that you will have different board requirements at different stages of your business. Do an honest deep dive to assess your skill gaps – and there will be some, it would be strange not to have gaps! And then ask around for recommendations on potential directors to join your company – look beyond your own networks and ask universities, colleges, bank, accountant, lawyer, business angel groups, business support organisations and, most importantly, your fellow entrepreneurs.
Do your diligence (detective work!) on any recommendations – check out their social media profiles and ask for references – and keep in mind that your personal relationship with them is key. If you go to dinner with a potential board member and realise at the end of the evening you just can’t get along at all, they will not be the right person for you! Where possible work with a potential board member for a couple of months before finalising any formal arrangement with them and make sure you specify terms of references upfront i.e. as a director she will do a, b and c for the company in return for x, y and z, and do this for x number of years for x payment.
In return for their work as a board member, some people will want a standard fee (ranges between say £500-£1000 per day), some people don’t want anything, some people will want a sweat equity stake (a number of shares for free in return for unpaid work), some will require a combination of both. Sweat equity can be great as it saves you precious cashflow but be very careful and take your time before going down this route. Once a person is a director and shareholder at the same time they are with you in the company for a very long time!
Finally, as an entrepreneur, over and above what we have already discussed, what do you really want from your board members?
You are looking for someone who has experience relevant to your journey and stage of growth, someone who is not afraid to get their hands dirty and will get down in the trenches with you, someone who is nimble and able to make decisions in the absence of information and keep you focused. Most importantly, they need to support you, challenge you, share your passion and commitment and, above all, you need to be able to trust one another.
And if a board member gives you all that, what do they expect from you in return? Trust, commitment, honesty, transparency, listening, communication and no hiding of bad news! It’s easy for an experienced board director to see the danger signs in a start-up company – late information, late accounts, off-the-record conversations, lack of communication, posturing, dominant Chair, lack of challenge – don’t let that happen to you. Build the relationship, create trust and communicate consistently and with clarity to your board – that is how you win their respect and support.
You will no doubt now have many more detailed questions about boards that we can’t answer here as many of these questions will be distinct to your company.
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Then get in touch with us at Women’s Business Centre by contacting us – we will be happy to arrange a one-on-one call.
And organisations such as the Institute of Directors, Women on Boards and Changing the Chemistry are all invaluable resources for further information and potential board members for you.
Professor Lynne Cadenhead
Chair, Women’s Enterprise Scotland
Visiting Professor in Governance and Enterprise, Edinburgh Napier University
IOD Scotland Director of the Year – Equality, Diversity and Inclusion 2020