A board of directors advises and supervises an organization’s activities, representing the interests of its shareholders. And in today’s business world, boards are perhaps more important than ever, as global management consulting firm Egon Zehnder explains: “Shareholders and society as a whole now expect much more from boards of directors, as part of increased scrutiny of our institutions.”
That said, if you’re a small business, you’d be forgiven for asking whether you really need a board of directors at your level. If you are a public company, a board is a legal requirement, although as a private company, you’re only legally required to have a company director, but not necessarily a whole group of people. However, this doesn’t mean a board of directors doesn’t have its benefits — here are some of the reasons it might be worth putting one together for your small business.
1. When you need to fill knowledge gaps
You learn something new every day when you run a small business, but that also has the implication that there’s always more to find out. Having a board of directors gives you access to a team of experienced professionals who will be able to pinpoint opportunities that may never have occurred to you, and refine your current systems and processes for maximum impact. For example, inadequate management and faulty infrastructure are two common reasons small businesses fail. You may not realize that your company is facing these issues, but a good board of directors can not only spot them, but advise you on the best course of action. They can also bring vital skills that are currently missing, which is why it’s common for a board of directors to include experts in finance, law, strategy, marketing and ICT.
2. When you need discipline
If you’re struggling to stick to your business strategy, failing to achieve your goals, or losing your sense of direction, a board of directors may be able to get you back on track. As well as offering you invaluable advice, they will also hold you accountable. Author, attorney and CPA Mark J. Kohler believes this makes a board of directors hugely beneficial for businesses of all sizes. “Are you going to meet certain timelines? What’s your goal for this year, next month, three months from now, six months from now? That’s what a board can do to help you succeed,” he explained in a video for Entrepreneur.com. “Not only the encouragement and support but that ability to ask you how you’re proceeding and hold you accountable to the goals you’re setting.”
3. When you need fresh perspectives
Introducing a board of directors means there will be people looking at your business from different perspectives. This gives you a greater variety of thoughts and ideas, which can ultimately lead to increasingly creative business developments. However, this is even more true when you have a diverse board of directors. As Columbia University professor and leadership strategy expert Jason Wingard wrote for Forbes: “Diverse members contribute fresh insights and crucial technical skills that can improve board functions.” He also quoted the late Katherine W. Phillips, a fellow Columbia University professor. “Diversity,” she explains, “often comes with more cognitive processing and more exchange of information and more perceptions of conflict.” This can help staff come up with new concepts and creatively solve problems within their organization.
4. When you need connections
Networking is crucial for your small business, as it can help you to acquire leads, build brand visibility, and find people who can offer assistance if you need it. However, if it’s still early days in your entrepreneurial journey, you might not have an extensive list of contacts just yet. However, bringing in a board of directors is a great way to instantly increase your potential connections, whether they are investors, suppliers or clients.
5. When you need credibility
Reputation is everything in the business world, and having a competent board of directors can affect how credible you look to outsiders. This appeals to investors, financial institutions and partners, as it suggests your business is lower risk when it has access to balanced, objective advice and support, which should make it easier and cheaper to secure capital to finance. A board of directors will also make your business appear more legitimate to its customers, employees and vendors, as lower risk means their interests are also safeguarded.
Simon Davies is a freelance journalist interested in marketing, tech and small business. Follow him at @SimonTheoDavies.