Submitting to the scrutiny of outsiders when you previously held all the cards can be an uncomfortable thing to do. But if you’re serious about growing into a large private company and especially if you are planning an exit or bringing in significant external investment, a professional board structure is key in demonstrating that you are a serious, well-governed business.
Roger Barker, director of corporate governance and professional standards at the Institute of Directors says: “If you want to create a sustainable business over a longer period of time, of any significant size, that’s when you’re going to need a more formal governance structure, a board of directors, which is more than just one person but actually has other sources of expertise and input.”
Listed companies have vast and intricate governance structures with multiple non-executives, committees and rules. Those with a premium listing on the London Stock Exchange take steps to abide by the UK Corporate Governance Code, a thorough set of guidelines for how a board should function.
This serves as a useful indication of how boards should behave, but for a smaller, private, business the transition will run more smoothly if you create a governance structure in gradual steps.
“You don’t want to have this huge bureaucratic governance framework which is going to cost a lot of money when the size and complexity of the business doesn’t really merit it,” Barker says.
He suggests that a good (although not essential) first step could be to create a small “advisory board” of irregular part-time experienced businesspeople who can bring a new perspective and expertise to the business but will not hold any responsibility for governing the company.
This could be a good way to sound out some potential advisors who you feel comfortable with and could then join the full board as a non-executive director (NED).
Barker says: “I think typically a first step would be perhaps to introduce one person on to the board as an outsider, as a non-executive, typically to fill that knowledge gap on the the board. What kind of experience do you need that you currently don’t have within your existing management structure that would really assist you and add value to your organisation?”
As you grow from there, the value of the board comes to be about governance and accountability as it is about bringing in expertise and at this point it becomes important to bring in a non-executive chairman to demonstrate to suppliers, creditors and investors that your business has experienced, independent leadership.
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