It does not matter what size your company is—the issues are always the same. Some critical questions to consider are: Do you have a growth strategy and how is it measured? Do you know if your revenue, expenses, and margins are growing, stable or declining? How leveraged is your balance sheet? Are you evaluating management and employee compensation? All company owners should start thinking about these questions today.
In companies where the founder still owns the majority (if not all) of the business and makes most of the management decisions, the founder is called a “Controlling Owner.” As an entrepreneur and Controlling Owner, bringing on a Board of Directors is a responsibility of managing your company.
Ask yourself whether your business is still sustainable if you get hit by a bus? Do you want your company to shut down if something happens to you? Unfortunately, if you do not take action, you are heading down that path whether you want to admit it or not.
Growing up in a family Real Estate business, I started attending the company Board of Directors meetings just after graduating from college. I learned the importance of quarterly, consistent meetings to consider the financial numbers. As the complexity and size of the company grew for 25 years, these meetings became even more vital. Looking back on the initial Board established by my Grandfather, I am grateful for the roadmap he started that benefited both the company and family.
There are different names for it -Advisory Council or Board of Directors. But the recommendation is to start now with a Board or Council. It will evolve with complexity as your business grows.
- Target 5 to 8 members
- Include the founder/owner and potential family succession members- such as young adult children (even if not in management currently)
- Independent Advisors who have skills the company needs to fill gaps in experiences (not vendors or paid advisors to the company)
- Advisors who are on board with the long-term company vision.
- Advisors who respect the family, and are willing to navigate family politics and set parameters for family involvement.
- Advisors who can be both independent and work as a team. The goal is to add value and not just be a “yes woman” and agree with the founder, management or family.
Advantages: Board of Directors meetings (preferably quarterly)
- Provide you the discipline to face your facts/numbers.
- Hold management accountable—discuss quarterly reports and budget. As the company grows with complexity so should the information provided at the meetings
- Track Key Performance Indicators—the metrics the company should be measured by
- Establish strategy for future goals and vision for the company, weighing the differences between short-term strategy and long-term strategy
- Act as a Fiduciary representing shareholders, which may be different than owners and management team. Sometimes those goals are in conflict—this needs to be discussed.
- Shareholder Breakdown: Assess if the founder owns all of the shares—is this in the family’s best interest?
- Balance the opportunities and concerns regarding family members working in the family business
- Be a part of the big decisions while they are happening—taking ownership and not second-guessing after the fact.
So we’ve given you lots of issues to consider. Now, what action step can you take today to start building your Board of Directors?