Do You Need a Board?

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With experience serving on various boards and mentoring entrepreneurs, I firmly believe in the substantial contribution a strong board can make to your company's growth and the creation of conditions necessary for a successful exit. This post marks the beginning of a series dedicated to the establishment and management of boards for small businesses.

Board of Directors vs. Advisory Board: A Distinction

A Board of Directors is a group of shareholders entrusted with specific legal and formal responsibilities to govern a company, thereby adding value to the company for the long-term benefit of stakeholders. A proficient Board steers companies towards a sustainable future by implementing sound, ethical, legal, and financial policies while ensuring adequate resources. While management handles day-to-day operations, such as strategy, budgets, goals, and compensation, the Board holds the legal obligation to prioritize the company's and shareholders' interests above all else.

Think of an Advisory Board as a team of coaches, essential if you aspire to be a true contender. An Advisory Board consists of non-mandatory subject matter experts who enhance your performance and provide astute business advice in specific areas, such as Sales, Marketing, and Operations. Beyond offering support, these advisors bestow credibility upon your company, facilitate access and connections in new business development and fundraising endeavors. Imagine the impact of having figures like Richard Branson, Jeff Bezos, or Bill Gates associated with your board.

The Value of Boards

Building a successful company demands considerable human and financial resources, and very few can accomplish this feat in isolation. Even the most accomplished entrepreneurs require experienced, invested individuals to offer guidance and insights. When a management team is engrossed in the daily operations, losing sight of the bigger picture becomes a risk.

A Board of Directors can formally and informally assist the CEO and management team in understanding the company's operations and the most effective means of achieving long-term goals. Traditionally, a board serves five pivotal functions:

1. Nominate and, if necessary, hire the CEO and provide mentoring support.

2. Collaborate with management to define a clear strategic direction.

3. Approve the operating budget and ensure adequate capitalization.

4. Monitor performance and provide advice on critical issues such as investments, mergers and acquisitions, human resources, compensation, and regulatory compliance.

5. Uphold good governance practices, legal compliance, and ethical standards.

This post is the first installment in a series about boards. In the near future, we will publish additional articles covering topics such as board candidate selection, compensation, and management. Meanwhile, for regulatory guidance, please refer to the framework established by the SEC, reach out to us for assistance, or seek legal and financial counsel.

For further insights, contact us, or seek legal and financial advice and consider the following resources;