The first thing I usually hear is “Surely that’s only for large companies?”
No, all companies can benefit. The small just as much as the large ones. There are just different focuses but the same outcomes – growth, accountability, direction, polices and oversight. In very large companies you will have subcommittees such as Audit, Risk, Remuneration, and a Governance Committee to name a few.
The principle role of the board is in governance, compliance, legislative requirements, risk management, and direction. They need to oversee organisational performance, monitoring and the support of senior management, develop and direct strategies and the vision of the company.
The day to day execution of managing these outcomes is held by the CEO or MD who is selected by the board. This position is the conduit that the board work through. Boards will change their CEO’s or MD’s based on the skills required for the company to achieve its goals. As an example, the skills to manage a
$20M company are different to those for the skills to manage a $100M company or skills required to grow a company from $20M-$100M. This doesn’t reflect negatively on the MD or CEO it’s just purely based on the skills and experience that are needed at that point in time.
Board mix, skill set, knowledge and experience are critical. In smaller companies with less members you will have people with several skills, in large organisations with more people on the board, it means that you can have specific people with deeper skills and knowledge. It is critical that you list the required skills and make sure you have people that cover these areas. Also, there is a need to have these roles filled by executive and non-executive positions. Non-executives are not involved in the day to running of the company; therefore, they have an external perspective.
There are many examples of companies that have failed due to lack of an experienced board, directors asleep at the wheel, directors there for their own personal and political gains which can make for a misfunctioning board.
One of the biggest mistakes made by owners and entrepreneurs is as their business grows, they believe they do not need a board or an executive committee and that they can do it all, as well as run the business. This can be a very costly mistake, that can hold the business back and result in missed opportunities.
The reality is, it is almost impossible to remain objective, hold yourself accountable, stay motivated and then bring to the table all the experience and skills (listed above) while being involved in the day to day management of the company. Not even Superman can do it all.
Boards often lack the ability to objectively evaluate their makeup to determine if they have the right people and skills at the table. As an example, they are made up of similar thinking people, yes people to the owners with similar backgrounds and skills, usually lots of accounting, legal or people from the same industry, again a recipe for failure.
60% of businesses finish each month failing to achieve the profits they deserve. One of the major contributing factors to this is lack of business acumen. This is so much so that the Australian Productivity Commission found in a report of Australian small business failure that lack of business ability was the third highest named factor.
One of the easiest, fastest and most cost-effective ways to fill out that gap is by engaging highly experienced external business advisors such as ecco. We can provide you with an independent view and assessment based on over 120 years of combined business experience. We can help support you within your business when you need an accountability partner to ensure you are on track or someone you can bounce ideas off or share your frustrations.
Frank Colli
Managing Director
eccoConsultants
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