No one builds or founds a company and thinks ‘now to learn more about governance’!
People start with a vision – something that drives them to do what they do. We seek advice from mentors and friends to help us; ‘governance’ doesn’t appear on our radar.
So why is it important? Governance ‘underpins the direction, effectiveness and accountability of any organisation’. Fundamentally, good governance is the framework that will enable your company to achieve your purpose and measure your progress.
How you manage your governance affects your business positively or negatively; getting it wrong can cause you real problems, so it’s worth investing time and effort in getting it right!
Here are 5 top tips from our experience to help build your first board…
- Understand what a board is.
To create your first board you need to understand what a board actually is and how it functions. Your company’s purpose is the reason the company exists; the board is responsible for setting and reconfirming the company’s purpose.
Boards are responsible for the health of your company and take a long-term view; they manage the balance between short-term interests and long-term impact.
Remember too that boards change over time, and they should! Rarely does the board of directors when a company begins end up being the same ten years later.
Directors can become conflicted by knowing too much (see our blog on what are conflicts of interest?). Be aware of what your company needs, and don’t be scared to change your board!
- Read your company articles
Most people don’t read their company articles when they start out! It’s important to do this for two reasons:
- Unlike AGMs (Annual General Meetings) which are highly regulated, company articles refer to ‘director meetings’, which can be misleading! The conduct of board meetings is almost entirely undefined by the Companies Act apart from minutes requirements.
- As a company grows, particularly in relation to external investment, your articles may change.
- Know the difference between ownership and management
The veil of incorporation ensures that a company is a separate legal entity from its directors and shareholders. This protects owners’ and investors’ assets and limits their liability.
It is important to understand these different roles and responsibilities.
Most matters can be collectively decided by your board of directors (subject to articles) in a board meeting. The articles will usually set out provisions governing the procedure for a board meeting, however some decisions WILL require a resolution of the shareholders, and are outside directors’ authority.
Make sure you know whether you are meeting and documenting your decision-making in accordance with your articles and their provisions. (We cover the differences between Directors and Shareholders in one of our Academy modules.)
- Know the difference between an advisory board and a statutory board
Advisory boards are a relatively new trend (especially in the US) and are particularly prevalent in the technology businesses.
You may be interested in creating an advisory board as it can be a great tool for quickly building your credibility. (see our blog What is an advisory board? )
There are some that are good. And there are some that are very very bad. In most cities and science parks right now there are some seriously bad advisors around! Because it isn’t a protected term, there isn’t a regulatory body, and it is an easy term to use (aka non-executive, chair, etc).
The biggest issue here is knowing the difference between this and your statutory board – as both can be referred to as simply ‘the board’. Be clear you are not blurring the lines between the legal definition of a director and advisor, and that powers/responsibilities are clearly defined and written down.
- Consider your reputational risk
DO YOUR HOMEWORK! Virtually all advisors are well-meaning, keen to help and do exactly what they say they will. But there are a few that aren’t, the same goes for websites and other information sources.
As a new business, especially in the early stages, you are easy prey to be taken advantage of, and are more likely, being inexperienced, to make mistakes. Do some thinking and research about what you want, what skills you need. Ask people for their credentials, seek references, etc.
Remember that rarely is there a case where appointing/changing your board is a matter of urgency. As long as you appoint according to your articles, it can be done pretty quickly, but it’s much harder to remove people from your board.
Seek advice, talk to peers and make the most of the support from professional membership organisations like the MIA before you make a commitment.
As part of miacademy, we are thrilled to offer you a range of board and director improvement tools to help you to build your confidence as a Director, strengthen your business and its resilience, and develop your leadership team and their performance. All MIA members have free access to a ‘Director statutory duties’ course, with more content available. Find out more here