A GREAT COMPANY DESERVES A GREAT BOARD

🖊️English version here

💡𝐊𝐄𝐘 𝐁𝐄𝐍𝐄𝐅𝐈𝐓𝐒 𝐎𝐅 𝐈𝐍𝐓𝐄𝐆𝐑𝐀𝐓𝐈𝐍𝐆 𝐀 𝐁𝐎𝐀𝐑𝐃 𝐎𝐅 𝐃𝐈𝐑𝐄𝐂𝐓𝐎𝐑𝐒 𝐈𝐍 𝐘𝐎𝐔𝐑 𝐂𝐎𝐌𝐏𝐀𝐍𝐘

The key to success in business is the ability to constantly adapt and improve. An effective board of directors can be the catalyst that makes it possible."- Jack Welch

(Originally published on November 28, 2023, in the Smart BoardRoom Strategies monthly publication, which addresses the challenges that a board of directors faces in a high uncertainty context. If you are a board member, if you aspire to be part of one, or have a managerial role related to the board, this publication is for you. ✅ Click here to subscribe.)

📝 Various studies show that a significant number of small and medium-sized businesses do not have a board of directors or do not have a professionalized one. These businesses, often led by their owners or founders, doubt the need for a Board.

However, a 2022 McKinsey study found that companies with corporate governance issues are more likely to fail and that companies facing challenges are more likely to overcome them with the support of a good Board of Directors.

➡️Establishing a board of directors in your company or redesigning the one you already have can be one of the most important decisions you make as a business leader.

It's a topic that raises significant doubts for many entrepreneurs but has implications beyond legal requirements. An effective board of directors provides a series of benefits that can help your company grow and thrive in an increasingly complex, volatile, and competitive business world.

An efficient management team can indeed grow the company in a solid, profitable, and sustainable way. However, it is equally true that with the support and supervision of a Board of Directors with complementary expertise and exceptional operation, they can take the company to levels that would otherwise not be possible. 

While I focus on Boards of Directors, when it comes to taking the first step, it is equally valuable to consider an Advisory Board. This is an informal, unregulated body composed of various professionals who support the governance and management of the organization. There is no legal obligation for its establishment, which gives it more flexibility. The advisory board is sometimes seen as a preliminary phase before forming a board of directors. In other cases, both bodies coexist and work in a complementary manner. The Advisory Board can provide additional knowledge and guidance for the Board of Directors and executive management.

➡️Small businesses often view the creation of a board as intimidating, distant, and elitist, believing that it will not add value or that they cannot afford it. However, by leveraging the knowledge and experience of external experts, companies can accelerate their growth, optimize profitability, and secure their future. The key is to design a model that fits the company, considering aspects such as whether to opt for an advisory or administrative board, its size, the experience of its members, and the compensation model, among others.

There are five main reasons to create a board of directors in your company:⤵️

1️⃣ Promotes meaningful action within the company

The board determines a company's purpose, vision, and values, guiding its agenda with a strategic focus and a long-term vision. Thanks to the members' expertise in various fields and sectors, the board can question, challenge, and complement the proposals presented by the CEO and their team, generating ideas that enhance the initial proposal through their discussions.

 2️⃣ Promotes accountability and Achievement of Results

The board oversees the design of the strategy, its implementation throughout the organization, and the execution of the plan to achieve set objectives.

It maintains a focus on achievement and confronts the vision (what is important, what the company aims to achieve) with a clear picture of reality (where the organization currently stands in relation to where it intends to be), thus creating "creative tension."

The Board has the ability to generate and sustain creative tension by creating a "learning" environment that allows the organization to enhance its ability to produce the desired results. This approach prevents the emotional tension of individuals involved in achieving results from diminishing the vision.

With diverse experiences and profiles, issues are addressed from a holistic perspective, leading to better decision-making.

3️⃣ Enhances connections

A board of directors brings varied knowledge and experience from diverse companies, sectors, and situations and a robust network of contacts that can open doors to new collaboration opportunities, resources, information, and business development.

4️⃣ Instills confidence

An effective board comprised of high-level professionals in their respective fields builds a trustworthy brand that fosters credibility with investors and other stakeholders. The board aids in identifying and mitigating business risks by ensuring regulatory compliance. It promotes unity, provides an external perspective, and supports problem-solving in challenging situations.

 5️⃣ Facilitates communication and serves as a mediator

A properly structured board of directors can promote open and transparent communication with company executives, employees, and shareholders. Maintaining effective communication facilitates a swift and fair resolution of any issues that may arise.

 "The best structure will not guarantee results or performance. But the wrong structure is a guarantee of failure." - Peter Drucker

How it is designed has a decisive impact on achieving the board's effectiveness and ensuring current and future success. A good board architecture considers multiple aspects, not just individual members' professional experience or expertise. It seeks diversity in the broadest sense (education, experience, character, culture, gender). Diversity of thought is achieved through diversity of perspective, leading to holistic and well-informed decision-making.

This helps avoid "Group Think," reduces risks, and increases the likelihood of achieving outstanding and sustainable results. 

Although Boards of Directors still continue to appoint members based on personal relationships, past success, or reaching a certain level of visibility (such as membership in a significant board), this is changing.

Organizations have realized that creating or rebuilding a Board is not a simple task; it requires attracting and incorporating the most qualified individuals for the challenge. In other words, it involves bringing on board the people best suited to support the company in achieving its strategy and carrying out the necessary functions and responsibilities on the Board of Directors. 

Being a board member is different from being an executive, and having been a board member in company A does not guarantee suitability and success in company B. It is important to remember that being a board member is a discipline.

In summary, the absence of a professionalized Board is a barrier to the success of many companies. The support of an effective Board can make the difference between failure and sustainable growth. The board design is key to its success and should focus on a diverse composition and good governance criteria. This holistic approach increases effectiveness and reduces risks.

Discover how a Board of Directors can empower your company.🚀Ready to take a step towards more effective governance?

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