Posted On: 19th July 2012
Many, many small businesses are run by the founder or founders under autocratic control. But it can be very lonely at the top. Decisions can be made without fully running ‘make sense’ tests or gaining the input of others who may have previous experience. Sometimes this can lead to the wrong decisions being made. There are lots of businesses out there where family tensions and rivalries can stifle the development of a business.
It’s not just large businesses that benefit from having impartial outsiders on the board. Small businesses can benefit as well from having non-executive directors and regular board meetings. The idea is to hold the management to scrutiny and critically examine current trading and future plans. This means that you get asked the awkward questions that many small business owners avoid. Such non-executive directorships can play a crucial role in the success and growth of a business, especially as it moves from the small family stage to a larger trading entity. One of the key advantages is to force a business to have proper, formal board meetings rather than simply rely on ‘kitchen table’ gatherings. This means everyone gets included and the non-execs on the board can help the business see past the family relationships.
When selecting non-execs, ask people you trust and respect, and who have some distance from the business. Don’t necessarily look for someone within your industry. This means you will have to explain your underlying assumptions and norms within your industry in greater detail, which means they can be critically examined.
Non-execs can be volunteers, but the more time they put into a business, the greater will be the expectation that they are paid. There is a burgeoning industry in formal, paid NED roles. This may be appropriate for your business, but it may be better to ask someone you know and trust. What a non-exec should have is experience of sitting upon, or even chairing a board which is in charge of an organisation – they will bring a certain formality and code of practice which will help you get up to speed quickly.
Meetings should be at least once a quarter, and board papers should be distributed beforehand to allow proper consideration. Good information is key and you should open yourself and your business up to scrutiny. This may be uncomfortable at first, but the idea is to make the business stronger. Information is important – the board members need to have full disclosure from you prior to the meetings. This means management accounts at the very least.
The best businesses that I see are those that are open to advice. Be clear though – this does not mean that you cede control of your business. You are still in charge and the final decisions are yours. The purpose of your NEDs is to give you different perspectives and be a critical friend to you and your business.