For many small business owners in the catering equipment world, the idea of having a board of directors may seem like a step too far, especially if the company is family-formed and owned. But assembling the right leaders usually leads to tangible benefits, writes Clive Newell, managing director of specialist financial training and director-outsourcing firm Halagen.
In a fast-moving and fragmented market, the whole of the supply chain from manufacturers to end-users needs strong and focused leadership. Of the clients we have the privilege of working with, those with phenomenal leadership are the ones that make the most money and realise the best exit value on sale.
Yet the UK’s owner/manager SMEs are not best placed in their psyche to accommodate the additional and immense benefit a strong board of directors can bring. Here are the six essential attributes for a strong board:
It is hopeless having a group of directors — or the wrong directors — who never get together, or if they do they spend time discussing the white lines in the car park. The board should be set up to have a leader (chairman), be recognised as being the strategic driver for the business and have clear rules for the appointment, term and removal of directors. It should cover key roles and responsibilities such as finance, marketing, operations and HR direction. The directors must also have job descriptions and it’s important to be specific, punchy and clear on what’s expected of them.
Setting out the rules of how the board work and behave is an essential part of good business practice and reflects well on the brand. Areas such as declaration of interests may seem a bit nebulous for an SME, but if non-executive directors are invited into the camp how daft would it be not to check out if, in fact, they could damage the business through undisclosed conflicts.
Part of the role of the chairman is to support the CEO and lead the board. A good non-executive chairman will be the catalyst for a strong board. Get the wrong one and it becomes a mess!
Processes support the way the board operates and help make sure the board delivers real value. Minutes and papers circulated before meetings improve the operational efficiency of the board.
Skill sets and experience are, of course, central traits, but the following are absolutely crucial: Personality: too many clashes and there will be trouble; Responsibilities: these have to be clear; Duties: what has to be done, not only at the meeting, but in between times too; And experiences: need to be as wide as possible.
Chemistry and professionalism
The best boards are those where the directors get on with each other and get a buzz from what they are doing. Many people claim to be directors, but have not yet made the transition in thinking necessary to becoming a director. Part of this transition is about elevating the level of professionalism and behaviour of the individual.
It is not surprising, therefore, that few SMEs are able to get together or even assimilate a board to help power their business forward. This can be down to ignorance, cost, mindset, fear factor, nepotism and fit.
Many SMEs would also argue that they are ‘early stage’ and a board is not appropriate. Try telling that to an investor if a substantial amount of inward investment is being sought. They will expect a strong board to deliver the strategy and secure the return on their investment.
Taking on ‘the outsider’, especially for a family business, is a very big leap of faith, but examine the empirical evidence. If a family business reaches the second generation stage, the chances are it will also reach the classic fork in the business road.
One way is failure, the other prosperity. Again, the evidence is almost overwhelming in saying that the introduction of a non-executive director — and non-family member — at the fork-in-the-road stage leads to prosperity. Cost is also a barrier, but payment by results, deferred consideration or equity participation mean the P&L gets a more than proportionate positive push from non-exec involvement without an immediate cash hit.
What can a strong board do for the SME?
If the focus is right, the board will help develop and deliver the strategy and policy that the business needs to make it truly successful and high value. The owner/manager that does not believe in having a board and waits until his or her 64th birthday before considering an exit is foolish as, of course, the business is likely to be dependent on them.
Buyers hate dependent ‘relatives’ and love an independent (of the owners) business and will pay a premium for a business that has a strong, properly constituted board to perpetuate wealth creation. And so the advice is this: even if you as a business owner can only increase your board from one to two, then you should do it!