Bringing in the board

It’s the question that every successful entrepreneur faces as they grow their business: Is creating a board of directors really worth it? How much do I gain? And what happens to that independence that got me to where I am?

Fast-growing SMEs clearly wrestle with this issue. Of the 50 firms on SmartCompany’s recent Smart50 list, 29 do not have boards, with many saying they are just too small.

But for the remaining companies, appointing a board of directors or advisors has been crucial in taking their company to the next level.

Marcus Sellen, founder of the SELMAR Institute of Education says: “Initiating a board of directors has been the biggest help and support for me personally as well as for the business. They help assist with the direction and leadership of the business and ensure the business has the appropriate level of control. Their in-depth knowledge of running a business along with our industry specialists will hopefully be a great attribute in driving SELMAR forward to achieve our main aims and objectives.”

Sam Riley, managing director of virtual data room services company Ansarada concurs.

“People who sit on the board have a large amount of experience from the sectors that our business services, giving a fantastic inside viewpoint on the importance and relevance of some issues and development ideas. The board has helped remove the emotion in decision-making and when the company started to grow rapidly and went global, it gave an impartial view on best practices to adopt for long lasting success.”

Pizza Capers founder Anthony Russo says his company is establishing a board “to assist our metamorphosis from medium enterprise to large enterprise”.

“The intention of the board is to help steer the brand in the right direction to take maximum advantage of our growth,” Russo says.

Wesfarmers director Charles Macek, one of Australia’s most respected boardroom veterans who has also worked with the SME sector, says that many family businesses rocketed to the next level when they put in a board and professional management. Some of the best examples include the world’s biggest retailer Wal Mart, established by the Walton family in the early 60s, Rupert Murdoch’s News Corporation and Frank Lowy’s Westfield.

How does a business owner know when it’s time to set up a board?

“The glib answer is that the business has outgrown the capacity of the founders to manage it and take it forward,” Macek says.

“That might be evidenced by the business stalling, making some bad decisions that could have perhaps been prevented if there was a different skills set around the broad room table. That might be a wake-up call for them.”

“Or there could be some very enlightened leadership that realises their limitations and will bring in outside help. That’s one of the hallmarks of very successful people. They are not necessarily the smartest people but they know what they should know and therefore go out and recruit.”

Besides the extra oversight and advice, a board can add skills that might be lacking. An entrepreneur, for example, might have brilliant marketing skills but might need expertise in such areas as accounting, financial controls and the law. Board members might also have good connections with companies being serviced, or with the financial sector. For a private company navigating its way through the challenges of rapid growth, volatile conditions and stubborn capital markets, a good board can provide valuable assistance.

Specialists and entrepreneurs say that you need to look for board members who can complement, rather than replicate, insiders’ strengths. Very few entrepreneurs have all the skills. There are not that many who can manage operations, finance, sales and marketing, and human resources with equal skill, and at the same time present themselves as great leaders. Directors need to complement skill sets.

Peter Pagonis, a senior client service partner at Deloitte Private, says the board is essential for managing fast growth and ensuring it does not get out of hand.

“When you start, you have no infrastructure. Then, all of a sudden the business takes off,” Pagonis says.

“You start small but when you get that rapid growth, that’s the time you have to start considering putting a board in place. The reason for having a board is to help companies go from very small to growth, and making sure they don’t explode by not having the right processes in place.”

“As the business grows and starts to diversify away from its origins, that will require a different skills set.”

Pagonis says having a strong board is a must for any business raising capital. When companies approach a bank for funding, their governance structures and the strategy is scrutinised carefully. Having a board reassures financiers that the business is on the right track for growth.

“I know we’re talking about SMEs but it’s good from a banking perspective,” Pagonis says.

For Smart50 operators, a board of directors brings in outside expertise and gives different perspectives that can only come from experienced outsiders.

Anthony Moorhouse, founder and managing director of property and business services specialist Dynamiq says putting in professional board of three executive directors, two non-executive directors and a financial controller was “one of the best decisions Dynamiq has made in its five year history”.

He says the board helps shape the company’s strategic direction and goals, ensures there is constant improvement. It is also developing the next tier of leaders for Dynamiq’s succession planning.

“Our non-executive directors on the board that have been around the block a few times provide an unparalleled level of experience in the team,” Moorhouse says.