Corporate governance for SMEs Part III

“I manage and work in my own company, why do I need a Board of Directors?”

World Class Business

January 07, 2020


I own most of the shares

 

I manage the company as CEO

 

I am the Head of Product and Business Development and Sales

 

What conflict could there possibly be?

surprise

 

Corporate Governance is about the way a company is controlled. In most large, public companies there is a separation of ownership and management and no controlling shareholder. It is good thinking to apply these principles to your small start-up from its inception by constituting a board comprising of your founders and investors that you may attract to the company. A non-executive director could be of enormous value to your business, especially if they have experience in your sector, have managed and grown similar businesses, and have raised funds before. A wise old “greybeard” could be key to help you to grow and scale your business.

 

Good corporate governance is about balancing the inherent conflicts of interest between diverse stakeholders, all with differing sets of interests.

 

Stakeholders

External - Direct

Internal

External - Indirect

Shareholders

Directors

Government

Lenders

Management

Regulators

Customers

Employees

Society

Suppliers

 

Environment

Creditors

 

 

 

The primary role of the Board is to act in the best interest of the company. This is accomplished by holding the team accountable and promoting transparency.

The Board needs to review and guide:

  • Corporate strategy
  • Goal setting
  • Major plans of action
  • Risk policy
  • Capital plans
  • Annual budgets

 

Importantly, they can hire, fire and remunerate management so choose your Board wisely!

 

So, who should be on your Board of Directors?

  • Investors, coaches and mentors who push you to reach your potential but understand that it’s ultimately your job to manage the company. You shouldn’t pay investors or co-founders for serving on your Board, but you can reimburse them for all their expenses related to their Board activities. Their terms should expire at different times to prevent losing all directors at the same time.
  • They should be familiar with start-ups and your industry, have an entrepreneurial mentality, and have a unique point of view or expertise to contribute.
  • They need to be your supporters, opening their network to you, and not speaking negatively of you in public. Their network alone should attract new business or connections to new business that will make it more than worthwhile to constitute your Board.

 

Invest the time in meeting potential board members face to face, checking their references, and letting other board members talk to them. These are people that are going to have a huge impact on how you transition from being a start-up to becoming a “grown-up” business.

 

Always be aware that once you have a Board, you open yourself up to being fired for poor or dishonest performance. However, the benefits of a soundly constituted Board should reap massive rewards for your company.

 

Ask a question