The importance of proper board structure 4 Apr 2014
The recent issues at the Co-op Group have only served to strengthen my belief that there is no substitute for a strong, competent board of business-focused people – no matter what the ownership structure of a business.
Any organisation, no matter what size can benefit from the experience of those who have been through similar situations and can therefore identify potential pitfalls, pick up errors before they become too costly, risk assess some of the current key clients, ensure there is a robust strategy in place to create a long term sustainable business.. and many more things besides.
A fully functioning board staffed with relevant executives and non-executive will meet regularly thus ensuring actions from previous board meetings have been executed (or for management to provide an explanation as to why not).
Over the years I have seen many boards at various stages of development. I have largely worked with privately-owned growing businesses that have reached a point where they have required private equity to get them to the next level. These are often businesses that have grown because of the passion of the owners, but they may not have had the time to focus on the composition of the board. When the PE firms get involved they will look to put together a board comprised of the CEO, FD, NXD and a Chairman. This is usually done in collaboration with the CEO and FD – there is a mutual aim here to build a board that can ensure this business delivers to its true potential. Often the NXD role will be taken by the investor who will work with the business to provide support both from the PE firm itself but also, where relevant from the wider portfolio. The Chairman role is key to the success of the board, it is he/she who will lead the board and the board meetings and it is therefore essential that both management and investor agree on who should be appointed. It is important to ensure that sufficient time is invested early on in the recruitment process so that the key requirements of both management and investor are met. The Chairman needs to fit the business not only in relation to the activity of the business but also his/her character needs to the fit with the overall culture of the business.
From understanding what to do and what not to do, which markets to go for and those to avoid a business can save itself so much time and money, this is hard to achieve without the discipline of regular board meetings.
I am an obvious evangelist for businesses building competent boards – we have built a business out of it! However, there is much objective evidence that a strong board comprised of the right mix of situational and operational experience can both add enormous value to the business but also save the business money by stopping it from making costly mistakes.