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Fresh Thinking

By , April 30, 2015

A current topic of discussion amongst the owners of smaller to medium enterprises (SME’s), family businesses and their advisers is, “should we establish some form of board structure for the business?” As with many topics of discussion and debate there are both advantages and some disadvantages to taking this step.

On the positive side of the equation what are the advantages? What value do they add? By having the right people on your board that are not working in your business on a daily basis there should be some real benefits.

  • Independent directors or advisory members bring fresh thinking and challenge management to ensure that the right strategies are in place and decisions are being made for the right reasons
  • The business owner doesn’t lose control of the business. The board is often an advisory board rather than a formal board as such, and therefore the owners have the final say and responsibility
  • This structure should improve your corporate governance. That is, help to ensure that the business has a proper strategic plan and then works towards achieving that plan, keeps management accountable for performance and decisions made, ensures risk management strategies are adopted and perhaps enhances human resource management practices.
  • Members of your board should give you access to a wider skill set, broader experience and access to different networks
  • A board structure helps to improve the value of your business for sale down the track
  • It offers a higher level or helicopter view of your business that is hard to achieve when you are working in your business on a daily basis
  • Particularly in family businesses a board or advisory board adds a genuine degree of independence. Often in family businesses family relationships can interfere with good decision making.

What then are the disadvantages?

  • Establishing a board structure does have some time commitment and will therefore, to some extent at least, mean that you have some time away from the business. Care just needs to be taken here to structure meetings outside key operational demand times for the owners.
  • There is some cost involved. Board or advisory board members do need to be paid for their time and contribution. This is usually not however an onerous cost, and the value added should far out way this expense.

There then comes the question of who should be on my advisory board? That is a question that perhaps you should give careful consideration. Should, for instance, my existing accountant be a member of my board? There are two points of view here. One is that they are familiar with the financial performance of my business and probably know me well, so therefore should be able to add value. The opposing view is that my accountant should already be a trusted adviser so there is no need to invite them onto my board. If they are not already a trusted adviser then again, why would I invite them to be a member of my board?

If the thought of establishing a board or advisory board seems a step too far at this point in time, then perhaps it would be a good idea to start be having regular meetings with just one trusted mentor. This might be a big help to both you personally and the business.

scottpatterson

Scott Patterson

Director | Succession Plus

Scott Patterson has extensive business and professional experience, including over 20 years as a principal of a highly successful public accounting and financial planning firm. His passion is working with clients to improve the value of their businesses, and create a more certain future for them, their stakeholders and their families.

Scott's aim is to deliver strategic thinking, tailored advice and integrated solutions for family businesses, SME's and agricultural enterprises.