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Scaffolding for your business

Dr Mike Ashby highlights the value that a good board can offer a business owner.

If we’re smart business owners, we will realise that we really don’t need to do this on our own. In fact, it’s not even a good idea to do this on our own. The research is clear: nearly all companies that get from small to medium and more had outside help.

Think of it as the scaffolding you need around your business to build it from the outside.
The reason we need scaffolding is because the first casualty of business ownership is objectivity. We get attached to certain ideas, people, and ways of doing things. We get so attached to our opinions that they become beliefs, and beliefs can be a luxury in a fast-changing market.

It’s a good idea to get as much help as you can in forming and changing those opinions. A powerful way of doing that is to upgrade your governance.
In this context, governance refers to stewardship of the company, as distinct from management or ownership. Normally, owners are also directors of their company, but it’s not a role they play actively. It tends to sit behind their roles as manager and shareholder.

Governance is about access to regular independent, objective advice. It’s another vehicle for that bright light, clear mirror and kick in the pants we all need.
Governance doesn’t necessarily entail a full board of directors with all the trappings of public companies – it also includes advisory boards. The difference is that full boards carry legal obligations and fiduciary responsibilities; advisory boards can provide the essential functions of a board without the obligations.

Stages and sages
Every organisation tends towards myopia and inertia. For us as business owners this means that the forest presents as a whole bunch of trees, all with their different issues and problems. We get emotionally and/or mentally over-invested and attached to particular trees. We develop a very inside-out view of our business and the world.
A board with independent directors or advisers has the advantage of bringing the outside in, offering a different perspective, independent of our attachments. The discipline and structure of the board process forces us to articulate our issues and perceptions to someone not as familiar with the business as we are – that generates insight (new ways of thinking about what we know).

The time to think about getting a board is when you’re coming up against big strategic issues and you need to tap into people with wider and higher experience in your industry; when you feel like you need someone who can challenge your thinking, and/or have more formality in your thinking about the business. You achieve this through the regular reporting and planning that goes with having a board.

But here’s the thing. In my experience it takes a considerable act of humility in an owner to say “even though it’s my company and my money, I’m still prepared to put the decision-making power with this board which includes outsiders”. It’s a bit of a legal fiction – the owner, as major shareholder of a private company, can fire the board anytime. It’s just like any law is a bit of a fiction – there’s no reason to obey the law other than that we agree to subject ourselves to it and its enforcement.

Good directors are conscious of their status – they’re there at the mercy of the shareholders who they might be disagreeing with in a meeting. But in a way, that tension is quite helpful. I’ve been involved in a few boards like this, and I’m acutely conscious that I have to be constructive, I have to choose where I make a stand, and guided only by the best interests of the company at heart.

I think it’s a healthy tension to know that I could get fired if I annoy the shareholder too much, but I could (and should) also get fired if I don’t annoy them at least a little bit by saying things they don’t want to hear but really need to think about.

The value a board creates for the business is partly a function of directors getting that balance right. But really, a board will be as good as the owner allows it to be.
If you do not value being challenged, if you cannot concede that there might be another way of looking at things, if you don’t think it’s possible that you might not have thought of everything, don’t set up a board of any kind.
 

Publishing Information
Magazine Issue: NZBusiness June 2015 Page Number: 51