Henri Eliot: Advisory board good starting point for small companies

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Directors can help ensure right processes in place to manage growth and focus strategy writes Henri Eliot.

As the company grows and changes, the governing board also should evolve to meet changing needs and circumstances. Photo / File
As the company grows and changes, the governing board also should evolve to meet changing needs and circumstances. Photo / File

What sort of board should an SME start with?
For most SMEs, an advisory is a good starting point. It provides non-binding strategic advice to organisations, unlike the board of directors appointed under the Companies Act. They are informal in nature and therefore have greater flexibility in how they are set up and managed.

As a company grows and changes, a board of directors can then help ensure you have the right processes in place to manage growth, focus your strategy, prepare to raise capital, and plan for an IPO.

The perceived advantage of non-executive directors is their independence and objectivity - their ability to act in the best interests of the company is not compromised.

Having a majority of non-executive directors is no guarantee against corporate failure.

What should fast-growing SMEs look for from their boards?
SMEs should be looking for an effective board of directors who are aligned with the strategic objectives of the company. The board should be a group of engaged professionals who bring a breadth of skills, experience and diversity to the company.

It is important that boards are able to test and challenge management's decisions and think independently.

A board of directors instils the discipline for the CEO or business owner to regularly look "at" the business and not "in" the business.

As the company grows and changes, the governing board also should evolve to meet changing needs and circumstances.

Are there too many lawyers and accountants on company boards?
SMEs should look for company-builders for their boards. Too many people make the mistake of putting lawyers and accountants on the board who tend to give advice around why you shouldn't do things rather than what you should do.

Entrepreneurship is risky and taking advice from employed lawyers and accountants can significantly stifle your growth or misdirect you.

You can always buy external advice but an effective board has diversity of skills, gender and ethnicity.

How would the board of a fashion company with international aspirations compare with that of a computer software business?

It is important to select people with broad experience in the issues and opportunities the company is facing, or is likely to face. Both examples should have directors with experience in the relevant industries.

How do boards manage a brand's value?
There is room for improvement here, as brand value often appears only when the annual business plan is reviewed or when a major campaign is about to be launched. Marketing issues are critical to boardroom deliberations. If customers are the source of revenue and shareholder value, then capturing customer preference though winning brand and marketing strategies lies with directors, as custodians of corporate strategy.

Should you expect board directors to spend time in the company seeing how it works?
The sooner new board directors are comfortable and familiar with the landscape in which the SME operates, with the challenges it confronts, the sooner they can make a meaningful contribution. If you don't understand the business, how do you govern?

Henri Eliot is chief executive of Board Dynamics, a board consultancy company.

- NZ Herald

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