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Boards and directors

A board of directors will help you build leadership skills and take a more strategic and well-rounded view of business. If you’re in growth mode, or you have plans to grow, a good governance team will help your business reach its potential.

Whether you choose an advisory board or a formal board of directors, you’ll benefit from a team of experts with a vested interested in your success.

Deciding if a board is right for you

There are no hard and fast rules on when you should get a board together.

Setting up a board might be a good idea when you:

  • need skills and expertise you lack internally
  • grow rapidly
  • have made a major acquisition
  • go through a large restructure
  • start succession planning or putting together an exit strategy
  • are a start-up with lots of shareholders and investment capital.

A business advisor or mentor can help you decide if a board is right for you.

Accountability is key — make sure everyone knows what their responsibilities are.

Accountability is key — make sure everyone knows what their responsibilities are.

This applies whether you have an advisory board, a board of directors, or a trusted advisor.

Benefits of a board

Many business owners worry they’ll lose control of their business if they set up a board.

But if you put careful thought and consideration into forming a governance team, you’ll find your board will empower you to make better, more informed decisions — and support you to see your plans through.

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Good governance can help you:

  • drive your business forward
  • avoid risks
  • seek new opportunities
  • grow your leadership skills
  • get an objective analysis of your business
  • develop a strategic direction
  • get independent thinking in a family-run business
  • connect with new networks.

Advisory board vs board of directors

These types of board have different roles and responsibilities.

Advisory boardBoard of directors
Provides support and advice to the owner without having any legal obligations or sway. Takes on significant legal and management responsibilities.
Therefore a good small business development tool. More committed to the success and longevity of a business.
No control or decision-making powers. Can instruct management to take action — and manage, direct or supervise the business.
More informal and flexible. Major responsibility for  the business’s success.
No legal obligations or duties to the business. Legally responsible to act in the best interest in the business.
Usually appointed by the business owner. Usually appointed by shareholders.

It’s important to clearly communicate what kind of board you have from the outset, so everyone knows their duties and limitations.

For more on the differences between advisory boards and boards of directors, see What is a board? (external link) on the Institute of Directors’ website.

There are two types of directors on a board, executive and non-executive, and two types of non-executive directors.

  • Executive: Usually a full-time employee of the business who also takes on a full range of responsibilities and duties of a director.
  • Non-executive: Not part of the executive or managerial team, so brings outside experience and objectivity to the board.
    • Non-independent: Holds other ties to the business, eg is a former employee or a major shareholder.
    • Independent: No other relationships or associations with the business that could interfere with their judgement — someone with a small proportion of shares might still be considered independent.

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Building your board

Boards should be diverse — your members should represent a broad range of experiences and aptitudes.

When you set up a board, define what sorts of expertise you need to succeed. Look for directors or advisors who fit the bill.

Many businesses look for board members with experience in:

  • strategic leadership
  • raising capital
  • technology
  • financial matters
  • international markets
  • health and safety leadership
  • compliance and risk
  • Māori issues
  • change management.

Everyone on your board will wear different hats, bring a range of skills to the table, and complement each other’s skill sets.

You won’t know a person’s full breadth of expertise until you’ve worked with them for a while, so don’t rush to put together a full governance team straightaway.

Members should cycle in and out. You should bring on new ones with different skills depending on your current goals and needs. There shouldn’t be anyone on your board who doesn’t add value.

How to set up a board (external link) — Institute of Directors

 
One way of preventing voting ties is to have an odd number of members on your board.

One way of preventing voting ties is to have an odd number of members on your board.

Finding a good board member

Good advisors and directors:

  • want to build your skills, not take control
  • are experts in your industry
  • have walked in your shoes
  • are proven problem solvers
  • are skilled in an area your business needs support in
  • hold themselves accountable
  • proactively work to see your business succeed.

Many businesses find board members through networking platforms, eg Linkedin, or online databases. You can also advertise roles on Institute of Directors.

Don’t rely on reputation and experience alone. Interview any potential directors or advisors. Validate their expertise and get a feel for their working style, motivations and expectations. Strive to be objective in your appointment process.

Director vacancies (external link) - Institute of Directors

Be sure to choose people you get on with.

Be sure to choose people you get on with.

Board members are an integral part of your team.

Alternatives to a board

If you aren’t ready for a more formal advisory board or board of directors, there are people and programmes to build leadership skills.

Seek support from:

  • trusted advisors
  • mentors
  • business coaches.

There’s also a wide range of business advisors to help you in specific parts of your business.

You can also develop you own strategic and governance cababilties. The Institute of Directors provides knowledge and training to develop your director skills (external link) .

You don’t need to have a board of directors to take a governance approach to business.

You don’t need to have a board of directors to take a governance approach to business.

This means taking a strategic view of your business, rather than focusing on day-to-day operations.

Common mistakes
  • Choosing board members who are experienced, but don’t fit your company culture.
  • Bringing on friends or family as board members — only get them involved if they have the skills and expertise you need.
  • Letting costs be a barrier. A good board member will cost less than your lowest paid employees and will deliver more strategic value.
  • Not cycling board members in and out. Your board should change depending on your current needs and objectives.

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