Sometimes the phrase “it takes a village” extends beyond just raising children—it’s also about raising your business! Whether you’re steering a start-up or a long-established company, assembling the right team of boards and directors can feel like adding brain trust to your arsenal. And who wouldn’t want a group of smart, strategic people in their corner?
Whether you opt for an advisory board or a formal board of directors, you’ll gain advantages from a group of specialists who are genuinely invested in your success.
Deciding if a board is right for you
There are no set guidelines on when you should establish a board.
Forming a board could be beneficial when:
- you require skills and expertise that are not available within your organisation
- your business is expanding rapidly
- you have recently completed a significant acquisition
- your company is undergoing a major restructure
- you are initiating succession planning or devising an exit strategy
- you are a start-up with multiple shareholders and investment capital.
A business advisor or mentor can assist you in determining whether a board is appropriate for your circumstances.
Tip
Being accountable is crucial – ensure that all individuals are aware of their respective responsibilities.
This principle holds true whether you have an advisory board, a board of directors, or a trusted advisor.
Benefits of a board
Many business owners have concerns about losing control of their business when establishing a board.
However, if you carefully consider and plan the formation of your governance team, you will discover that your board will enable you to make more informed and better decisions and support you in achieving your goals.
Effective governance can assist you in:
- propelling your business forward
- mitigating risks
- exploring new opportunities
- enhancing your leadership skills
- receiving an unbiased analysis of your business
- creating a strategic plan
- gaining independent perspectives in a family-run business
- establishing new networks.
Advisory board vs board of directors
These types of boards have different roles and responsibilities.
- Advisory board offers assistance and guidance to the owner without any legal obligations or influence – Board of directors assumes substantial legal and managerial responsibilities.
- Advisory board is an effective tool for developing small businesses – Board of directors is highly dedicated to the success and long-term sustainability of a business.
- Advisory board has no control or decision-making powers – Board of directors has the authority to direct management to take action and oversee, manage or supervise the business.
- Advisory board is more informal and flexible – Board of directors holds significant responsibility for the success of the business.
- Advisory board has no legal obligations or responsibilities to the business – Board of directors has a legal obligation to act in the best interest of the business.
- Advisory board is typically appointed by the business owner – Board of directors is usually appointed by shareholders.
It is crucial to clearly communicate the type of board you have right from the beginning, ensuring that everyone understands their responsibilities and limitations.
To learn more about the distinctions between advisory boards and boards of directors, refer to What is a board? on the Institute of Directors’ website.
There are two types of directors on a board: executive and non-executive. Additionally, there are two types of non-executive directors:
- Executive: Typically a full-time employee of the business who also assumes the complete range of directorial responsibilities and duties.
- Non-executive: Not part of the executive or managerial team, bringing external experience and objectivity to the board.
- Non-independent: Maintains other connections to the business, such as being a former employee or a major shareholder.
- Independent: Has no other relationships or affiliations with the business that may influence their judgment—someone with a small percentage of shares may still be considered independent.
Building your board
Boards should strive for diversity, with members representing a wide range of experiences and skills.
When establishing a board, it is important to define the specific expertise required for success. Seek directors or advisors who possess the desired qualifications.
Many businesses seek board members with experience in:
- strategic leadership
- raising capital
- technology
- financial matters
- international markets
- health and safety leadership
- compliance and risk
- Māori issues
- change management.
Each member of your board will have different roles, skills, and strengths that complement one another.
It takes time to fully understand a person’s range of expertise, so don’t hurry to form a complete governance team immediately.
Members should rotate periodically, and new ones with specific skills should be added as necessary to meet your current goals and requirements. There should be no one on your board who doesn’t provide value.
How to set up a board — Institute of Directors
Tip
An effective way to avoid a tie vote is to ensure that the number of members on your board is odd.
Finding a good board member
Good advisors and directors:
- aim to empower and enhance your skills, rather than take over control
- possess industry-specific expertise and knowledge
- have previously experienced similar situations to yours
- are skilled in finding and solving problems
- can offer support in areas where your business needs improvement
- hold themselves accountable
- actively work towards achieving the success of your business.
Networking platforms like LinkedIn and online databases can be helpful in finding potential board members. You can advertise open positions on Institute of Directors.
It’s important to not solely rely on reputation and experience. Conduct interviews with potential advisors and directors. Verify their skills and get a sense of their working style, motivations, and expectations. Strive to be impartial in your selection process.
Director vacancies — Institute of Directors
Tip
Make sure to select people you get along with. Board members are a vital part of your team.
Alternatives to a board
If you’re not yet prepared for a more official advisory board or board of directors, there are individuals and programmes available to improve your leadership skills.
Look for assistance from:
- trusted advisors
- mentors
- business coaches.
There is also a broad range of business advisors who can assist you in specific areas of your business.
You can also enhance your strategic and governance abilities. The Institute of Directors offers training and resources to develop your directorial skills.
Tips of types of advice you’ll need
Fact
Having a board of directors is not a prerequisite for adopting a governance approach to your business.
This approach involves taking a strategic perspective on your business instead of being solely focused on day-to-day operations.
Common mistakes
- Selecting board members who have experience but do not align with your company culture.
- Appointing friends or family as board members—only involve them if they possess the necessary skills and expertise.
- Allowing costs to act as a barrier. A competent board member will cost less than your lowest-paid employees while providing greater strategic value.
- Neglecting to rotate board members. Your board composition should evolve based on your present needs and objectives.
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