By Kerryn Newton, CEO
Small and Medium Enterprise (SME) clients – including family businesses – often come to us seeking to add an independent, non-executive director to their otherwise executive board.
Our approach in these instances is always to ask: why? Our earlier article – Does my SME need a board? explores this question further. There can be clear benefits for some SMEs in establishing a board whether to manage fast growth, as part of the next level of growth or for business succession planning.
Having established that a board is desirable, the next logical question is how does a SME put a board in place?
Some companies initially put in place an advisory board. This is a group of independent advisors who advise the company in areas such as strategy and business development.
An advisory board is not a decision-making entity and is not regulated under the Corporations Act, although advisory board members need to be careful that they are not in fact a governing board in which case the legal duties and obligations of a director might be applied.
Often, an advisory board might be part of a transition process to a more formal, governing board with functions regarding: setting and testing purpose, strategy and culture; monitoring company performance; appointing and monitoring the CEO; setting the risk appetite for the company; and monitoring risk and compliance management. Increasingly the role also involves stakeholder engagement.
Other companies establish a governing board from the outset, which means the directors have legal duties and liabilities under the Corporations Act.
If this is the path you choose for your SME, first you need to carefully consider the following key questions that we ask all clients at Directors Australia who are in this position:
- Is your company ready for the transition – both financially and emotionally?
- What will be the impact of loss of control and independence for the owner?
- Is the timing right given other things going on in the business?
- If yours is a family business, are there family governance issues to be sorted through first?
Finding the right board members
Whether your company is seeking to put in place an advisory board or a governing board, the next critical step is to determine the ideal composition of the board. This should include consideration of:
- the ideal professional and industry skills, knowledge and experience to be held collectively by the board to deliver on the board’s functions
- the ideal diversity required collectively across the board (age, geographic, gender, industry etc)
- the personal attributes and behaviours required in all board members (so that they can best contribute their skills, knowledge and experience and the benefits of their diversity attributes to the board’s discussions).
Resulting skill and diversity gaps from this assessment provide the basis for then recruiting board members.
Directors Australia assists a wide variety of SMEs including family companies in assessing board composition and recruiting exceptional non-executive board members to enhance company performance.