Expert Advice

How to run an effective board

Robert Craven talks about the ways in which you can run an effective board which could determine the future of your business.

Your business needs a central think tank, where the key decision-makers meet to make the top-level decisions which will determine the future direction of the business.

Many small business directors are given the title as a matter of course. Legally, anyone who acts as a director is considered to be a director of the company.

And the difference between a manager and a director is...?

You ask what the role of a director is and most start mumbling about the board and responsibility for the business and share options and so forth. It is as if you are meant to absorb the job description by osmosis when you are given the role. Like parenting, you are not given a manual and most make it up as they go along.

As working definitions, managers look after the day-to-day affairs, most managers are glorified supervisors. Directors, on the other hand, are responsible for all aspects of the business (as well as for the performance of their own areas of responsibility), taking stewardship and responsibility for the activities of all parts of the business and for its future direction.

The Roles of the Board

The board’s roles have been clarified in recent years and the four roles of the board are:

• Policy formulation
• Strategic thinking
• Supervision of management, and
• Accountability

They still present us with what can be described as some fundamental ‘directorial dilemmas’.

• To simultaneously be entrepreneurial and drive the business forward whilst keeping it under prudent control.
• To be sufficiently knowledgeable about the workings of the company to be answerable for its actions and yet stand back from the day-to-day management and retain an objective view.
• To be sensitive to the pressures of the short-term and yet be informed of the broader trends and competition.
• To be focused on the commercial needs of the business while acting responsibly towards its employees, business partners and society in general.

The board is the business brain – it links the short-term and the long-term; it links the external and the internal perspective.

It is an effective board that will let a business grow and flourish. Conversely, an incompetent board will probably destroy a business. ‘The Fish Rots From the Head’ is the aptly named title of a book on this very subject by Bob Garratt.

Get your business’s brain sorted out. Without clarity of leadership, focus, vision, and mission, your business will die. One of the real challenges for the growing business is to appoint and run an effective board that leads the business – working ON not IN the business.

How to run an effective board
Whatever the size of your business it needs to be driven. I use the word advisedly. No-one else will take control of the business so you have to.

1) An effective board knows what it should be doing.

The board should have determined the Vision, Mission and Strategy for the business. In plain English:

• Where do you want the business to be in, say, three years?
• What numbers are attached to that vision?
• How are you going to get there?

An effective board creates clarity that helps all decision-making.

2) An effective board is not necessarily the same as the owners/shareholders.

The board is appointed by the owners to run the business; the owner/shareholders main interest will be the return on their investment. The two functions are not the same and it needs to be recognised that the shareholders meeting is for owners, whereas the directors meeting is for the people running the business. Do not get them confused.

3) An effective board runs effective meetings.

Each meeting will be chaired, have a clear agenda and time schedule. Meetings start and finish on time. The agenda and any relevant notes will be distributed in advance. Directors should not be allowed to attend if they have not read the notes or if they arrive late. Each meeting starts with a review of the actions from the previous meeting followed by a financial review.

There should be a Financial Report, Marketing/Sales Report and a Service/Product Operations Report. Each report should be succinct – half a page maximum for the key points with the necessary supporting documentation if required. Ideally you should use a simple traffic light system to visually show where the key weaknesses are.

4) An effective board needs to have an effective management reporting system giving it the right information.

To make sense of the business performance requires clear definition of the business KPIs (Key Performance Indicators). As a result of defining the Vision, Mission and Strategy (see above) for the business you should be able to define the core success factors ad milestones towards success.

With that in place you can then define the KEY Performance Indicators. For each of Finance, Marketing and Operations, you should only need, say, three or four performance measures that act like the key dials in your cockpit.

5) An effective director knows what is going on and takes his/her responsibilities seriously

If the board process and system is put in place then life is made easier for the board members to have confidence in making the appropriate decisions for
the business.

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