A company forms a board of directors to help set its direction, course-correct when the company varies from the plan and provide needed guidance along the way. The most effective boards don’t try to make operating decisions and run the company; that’s not why they’re there. Directors provide oversight and additional pairs of eyes and ears for management. They’re invaluable when the going gets tough, and it will.
Ultimately, the owners of the company, the shareholders or stakeholders, have the duty and authority to select a quality board. In that selection process, it’s important to have a diversity of not only talent, but also gender, race and ethnicity. The problems management faces will be diverse and require direction from a cross section of experts.
I have seen and been a part of many boards, including businesses both private and public, for-profit and nonprofit — and they all face the same issues, dealing with customers, employees, income, funding, profitability and cash flow, among others.
The full function and responsibilities of a board will be outlined in company bylaws, which are approved by stakeholders. Additionally, boards should consider forming committees to take a deeper dive into various areas and take advantage of members’ skills. Committees typically include audit, finance, compensation, governance and sometimes executive.
Find a balance
My first direct experience with a board was as CFO. I was responsible for providing financial updates about our financial stability, growth and progress against goals. I was fortunate to have a boss, the CEO, who agreed I should provide complete information but not get down into the weeds with details.
Our board of directors at that time was also new at the job. We had to manage the members’ expectations while providing appropriate updates and keeping them from trying to run the company.
I vividly remember our first few meetings; they were contentious, for sure. A sit-down with the chairman, and founder, by the CEO was needed to gain confidence of the board, also made up of founders and customers. It was a very unique company structure and one that actually made the Harvard Business Review.
In my next company, I had a similar situation, but then I was the CEO. The chairman was again a founder, but also the major investor, with millions invested into the company. I had a similar sit-down, which was a little more difficult, but I was able to gain confidence and eventually had a very diverse board with a full committee structure. This came in handy during our IPO and acquisition due diligence process.
Keep it focused
It’s challenging setting up a board, and even more challenging to keep board meetings from being “bored” meetings. My board meetings at my last company were one to one-and-a-half hours maximum, down from the three-plus hours of those of my predecessor.
Keeping board meetings short but focused is more welcomed by directors than long, drawn-out sessions. And of course, lunch and great cookies also help.
John W. Manzetti is the managing director of Manzetti Group LLC. John is an award-winning, visionary financial and business leader, technology entrepreneur, startup adviser, investor and expert on the topics of economic development, venture capital formation and the commercialization of innovation. He wrote a book in 2018, “Small Bites of the Elephant,” where he uses straight talk and anecdotes to help small business owners and entrepreneurs address complex business issues.