Forming a Board

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Where do I go now that I have seen some success?

You have a functioning company; it has done quite well but now sees that further development will require skills and experience that you don’t have.

One solution to this might be the creation of a board. Such a board can provide leadership, direction and governance that can help you progress more effectively than if you were to continue without this support. The board will provide insights and points of view that are not accessible to you without external input.

What I am talking about?

At this point it is worth defining a few terms:

For the purpose of this article a company can be any organisation, charity, non-profit, CIC or private limited company; we are not concerning ourselves with PLCs, which are an entirely different animal.

A Board Member is any person who sits on the Board, whether or not they hold an official Directorship.

An Executive Director is an official company director, registered at Companies House who is responsible for the day to day operations of the company and has legal responsibilities laid out in the Companies Act.

A Non-Executive Director is a company director, registered at Companies House who sits on the board but has no direct operational responsibility. Often a Non-Executive Director (NED) will be appointed as chair of the company.

Executive and Non-Executive Directors are collectively known as Officers of the Company.

Boards may include voting and voting non-voting members. The non-voting members provide specialist guidance and perspectives to help the voting members decide on specific issues.

What does a board actually do?

Essentially, the Board is charged with holding the Executive Directors to account and to ensuring that they are working in the best interests of the Company.

The board is formed to ensure that the organisation’s legal responsibilities are fulfilled and that the company follows its own codes of practice and ethics. This is known as compliance.

To put it another way, the board sets the company policies that will enable to the company to achieve its objectives.

As the Board does not engage in the day-to-day activities of the company, it provides oversight and guidance to the management team.

In a corporate setting the board presents financial and operation reports to the AGM (Annual General Meeting) and recommends dividend declarations for shareholders. In Companies without share capital, not for profit organisations, charities and companies limited by guarantee, the Board defines how any financial surplus is to be distributed or reinvested in the business.

Director’s Responsibilities

Directors have certain legal obligations they must fulfil as officers of the company. Principally, they are responsible for ensuring that the company obeys the law and any regulations applicable to their activity. The directors must answer for any breaches of these rules.

Additionally, all members of a board are bound by ethical considerations:

  • They must behave in good faith and be free from any conflicts of interest. This means that the board member must place the interests of the company above any personal interests, which must not be allowed to influence board decisions.
  • Directors also have “fiduciary responsibility”, which bind them to being responsible for the company’ finances and ensuring its compliance with its legal obligations.

How should you create your Board?

There are some key considerations to observe when thinking about who to recruit to your Board:

  • What skills or areas of expertise are weak within your current organisation?
  • Are there niche services provided by your company that would benefit from the experience of a particular specialist?
  • How well does your board represent the diversity in your audience or marketplace?

Generally, a Board of Directors is made up of a chair, the executive director(s) of the company and other board members invited to provide opinions and guidance in their specialist fields. In recent years it has become popular to invite employee and/or audience representatives to sit on the board to open a wider perspective in decision making.

A useful tip is to include an odd number of voting members on a board. In this way a tied vote can be avoided.

Board members should be made aware of their levels of authority, remuneration package (if any) and the term of their appointment. A formal document, similar to an employment contract should be signed by both the Company and each board member to ensure these details are clear from the outset.

It is good practice to restrict the length of a term for any board member, after which time the member may stand for re-election or choose to leave the board.

Other considerations

As a small business, a board may be inappropriate for your development; only look to form a board once you have established your business practices and wish to build upon them. A board could be too unwieldy in your early days.

Always ensure that board meetings have a clear agenda that is respected; board meetings are not the place for “all other business”. Strategy, oversight and compliance are the order of the day, not “whose job is it to check the paper in the photocopier” and “is the picture on our latest ad too bright”.

Perhaps the most important take away from this article is to avoid fitting the skills of your family and friends to the requirements of your board. The personal relationships you have with your board should be professional at all times; do not allow them to affect the independence of your board, because after all, isn’t that why you set it up in the first place!

Final Note

Having considered everything above and decided that setting up a board is the right thing for you, remember to remain open minded to potentially new ideas and approaches, enjoy the experience that the board will share with you and look forward to a successful future!

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