How to best structure a business board
![business-board](https://media.bethebusiness.com/original_images/business-board.jpg)
It can be lonely to run a business. Many business leaders find it beneficial to have a strong board of directors behind them to provide advice and act as a sounding board.
A board can provide more than guidance too. Bringing in people with wider connections will also help to grow your network, open doors and create key partnerships.
So where do you start with building a board? In this article, we’ll look at the different roles involved, key recruitment tips and how to structure a board of directors.
The role of the board of directors
As a business owner, you’ll spend a significant amount of time with your board, so you need to understand its function and respect its place in your company.
The role of the board of directors is to:
- Manage the CEO
- Approve any significant company decisions
- Protect the interests of shareholders
- Anticipate problems and look for solutions before they escalate
- Provide strategic insight and experience
- Give direction on the hiring and firing of senior employees
- Have an invested interest into the success of your business venture
New startups and smaller companies that operate without external investment often find that an advisory board works better for them. This is a less formal group, which doesn’t have the same authority when it comes to overseeing finances or key decision making.
However, an advisory board can still provide a good level of guidance and leadership. This can be a useful introduction to incorporating governance into your company structure in the early days.
How to build a board of directors
We’ve all heard horror stories about board meetings that last forever and end in deadlock.
However, talk to a CEO with an effective board and you’ll hear a different story. That’s why the recruitment stage is crucial – your board needs to have the right skills, ambitions and experience to work.
It’s up to you to put together a group that will steer rather than control. When you’re thinking about how to structure a board of directors, try breaking it down into these three areas.
Recruitment
Recruiting people with the right mix of experience is the single most important step in setting up your board of directors. Consider the following:
What experience can they offer?
They may have an impressive CV, but does their skill set align with your business needs?
It’s fine for one board member to come with a generalist background, but the majority should understand how your business operates and have a deeper insight into your industry. Pay attention to specialisms so you have a well-balanced team with complementary skills across finance, operations, sales, marketing and HR.
Is your board diverse?
Harvard Business Review interviewed 19 board directors on the subject of diversity. They found that social diversity (gender, ethnicity, age) and professional diversity are both important to successful boards.
It’s also useful to have “idea diversity”, which involves finding people who could bring different views and perspectives.
Do they have clout?
One of the biggest benefits that your board members can bring is their network. Business success, especially in the early days, is often about making the right connections. Your board members should come with the right contacts to facilitate these introductions.
Laws and recommendations
Depending on the size of your company, there are a number of laws or recommendations you might need to adhere to.
- Private limited companies must have at least one company director
- Public limited companies must have at least two directors
- The UK Corporate Governance Code recommends that at least half of the board should be independent, non-executive directors, ideally with a diversity of backgrounds
- Appoint a chairperson to lead the board and set its agenda. This should be an independent non-executive director, not the CEO
- There is no legal obligation to appoint a company secretary, but you can choose to do so. The roles of company director and company secretary can be held by the same person
- For private companies, The Institute of Directors lists some practical considerations in its guide Corporate Governance Guidance and Principles for Unlisted Companies in the UK
Size matters
The number of people you appoint to your board can be crucial to its success. It’s wise to stick to an odd number, to help avoid deadlock on votes.
There’s lots of evidence to suggest that larger boards are less effective; many of the financial institutions that collapsed in the 2008 crash had very large boards. Harvard Business Review cites Citigroup as one example with 18 directors, 16 of which were independent.
So, what is the magic number? Research suggests that groups of seven are effective. The reason? Larger groups can fall into “social loafing” where members fail to take personal responsibility and rely on others to take the lead.
Incentives
Board members who are cash investors in your company have an invested interest and will be financially rewarded when the business succeeds. But how do you incentivise independent directors?
Typically, independent board members will receive compensation for their services. It’s common to agree on a percentage of equity as a form of payment, which may start out higher for early-stage companies and drop as the company grows.
Negotiate the terms at the outset to avoid frustration on either side later down the line.
Managing your board and staying focused
Managing a group of senior professionals can be daunting, but if you’ve put in the legwork with recruitment and structuring, the group should function well.
This is your chance to learn from their combined knowledge and to feed their expertise into the growth of your business. Put a strong action plan into place so everyone is clear about what’s expected.
Strategy and direction
Contributing to your business strategy is a key role of the board of directors. Here are some dos and don’ts for working on your business strategy together.
- Do ask for their initial input. What are the key challenges they think the company should address?
- Do discuss different strategies. Lay out some of the solutions you have identified to the challenges they set and get their input on whether they sound workable
- Do present your chosen strategy. If you incorporated the board’s advice along the way, the presentation should resonate well but be prepared to take further direction
- Don’t worry if there isn’t unanimous agreement. The main priority is to open up discussions and feed their suggestions into the process
- Don’t expect the board to write the strategy for you. Their job is to advise and challenge, not compile the entire plan
- Don’t expect a simple yes or no. Involve them at all the key stages, rather than presenting a finished piece that they’ve had no input into
Meetings
Prepare an agenda well in advance and encourage everyone to come ready to contribute. Work with the chairperson to make sure the meetings run smoothly.
- Has the right amount of information been provided ahead of the meeting?
- Has everyone had enough time to digest this information?
- Is the frequency of meetings right? Too often and you start covering old ground; too infrequent and the board feels out of the loop
- Is the agenda clear and does it address the kind of issues that the board can assist with?
- Would it help to bring in any other members of staff for part of the meeting to provide extra background information?
![jenner_collins](https://media.bethebusiness.com/original_images/jenner_collins.jpg)
“The board has been even more helpful than I expected. It’s a great opportunity to get people round the table who’ve been through what you’re going through, or something similar, whose experiences you can learn from.”
Jenner Collins, founder of Collins Limited
Boards will challenge your thinking
All too often, leaders are afraid that having a board of directors will mean that they lose control of the business. This hesitancy can hold businesses back and even stunt their growth.
Recruit and structure a board of directors carefully. Take on people who can fill the gaps in your knowledge and increase your business network. A good leader will learn to ask the right questions and take on board the answers, even if it challenges their way of thinking.