The leadership of a company will determine the business’ eventual destination and the speed at which it gets there. Leadership carries with it the burden of ensuring that a company makes a profit, employees are cared for, and customers are served. So it makes sense that distributors want the best leadership at the helm of the ship, and for many, that means having a board of directors.
STRENGTH IN NUMBERS
Jim Crocker, chairman of Boardroom Metrics, said that the first step to understanding the role of a board of directors to a company is to understand that there are actually three types of boards of directors: advisory boards, operating boards, and governance boards. Advisory boards offer only advice to the company, with no authority to make decisions. Operating boards make decisions regarding how the company will operate, and governance boards provide general oversight to the company. A governance board will identify risks to the company and strategies to mitigate them.
According to Crocker, a board of directors, properly functioning, will bring an objective opinion on how a company should run, since they don’t have the same view as those working in the company day-in and day-out.
A successful governance board will offer two main strengths: objectivity and accountability.
“For a governance board to do a good job, there have to be outsiders on the board of directors,” he said. These people should be from outside the company, and they should bring special expertise that the business would not otherwise have.
“The outsiders on the board should be representative of the risks and the strategies that the organization is facing,” he said. Crocker gave two examples: cybersecurity and e-commerce. He explained that cyber threats are a risk that every company is dealing with, and the largest companies (usually the largest targets) are actively seeking out cybersecurity professionals. Having security expertise in place can also increase the value of a company when it comes time to sell.
With the increase of web-based business growing only more prevalent with giants like Amazon, an ecommerce specialist on the board of directors could help distributors combat the risks that can come from ecommerce-based competitors.
Crocker also explained that a governance board is important for instilling accountability in a company, particularly with the CEO. The board will ensure that the CEO is performing as he or she should, executing the strategic plan as the board decides.
“When you talk to people who run these businesses, they will freely admit that they would probably be better if they actually got around to holding their CEO accountable,” he said.
He added that this is something CEOs don’t particularly like (a feeling he has felt himself), yet even those reluctant toward accountability will usually admit that formal oversight will help them perform better.
One particular challenge, he said, is when the CEO and the owner are the same person.
“People don’t become entrepreneurs normally because they want to be held accountable,” he said. “It’s their baby, and they want to run it.”
But that dynamic usually seems to change when the owner wants to sell the company.
“That’s when all of these private business owners get really clear that corporate governance is good for them,” he said. “Because there’s no question that buyers view companies with strong corporate governance higher. They give them much greater credit for knowing what they’re doing.”
A BIT OF STRATEGY
Michael Meier, president and CEO of Meier Supply, said that the greatest strength of having a board of directors is the ability to successfully strategize for the future.
“The greatest benefit of having a board of directors is having the right people in the right seats on the board with their skills and expertise to where they can provide oversight and company strategy and financial oversight, following corporate governance,” he said. Setting those specific goals and company strategy and having a board that oversees the process is critical, rather than throwing 10 people together in a room and telling them to talk.
“What are you trying to accomplish in your company?” he said. “Is it revenue growth? What are the development areas? Is it marketing? Is it on the financial side?”
Whether it be a strategy of acquisitions or organic growth, identifying that specifically is important.
“Once you clarify what the biggest development areas are that can move the needle, then you determine, ‘Okay, here are the people we need to drive these particular development areas that we plan on implementing,’” he said.
Meier also said that having a board of directors with differing opinions and disagreements is important. He’s seen meetings where one person shares an opinion, and everyone goes around the room, agreeing. That is, until somebody shares an opinion that’s different, and everybody else starts changing their opinion to match the new one.
“It’s important to have a board of directors that have different outlooks, opinions, and viewpoints on business and the outlook of business so that collectively, they can come to a consensus — but through data,” he said.
Brian Newport, corporate director of residential sales and board member for Habegger Corp., described his company and its board of advisors. The board consists of family members across two generations, plus others who are not members of the family as well. He said that the mixture of viewpoints in the board of advisors “allows us to strategize and plan our company, vision, planning, growth, profitability, challenges, and opportunities.”
The board works well, he explained, because everyone has a similar vision for the company, but some of the members want to be more aggressive in change, and others would like to change slower. The two viewpoints strike a nice balance to one another.
“We all have the same endgame in mind,” he said. “And the key is to work collaboratively and take risks.”
Having the same vision doesn’t mean agreeing 100 percent of the time, since one of the important attributes of the board is having varying perspectives and cordially debating the right course of business action. However, everyone has the same vision for the company thriving. And those varying perspectives are very important, he said. Various family members have different perspectives, and those with experience from outside the industry, who didn’t grow up in the business, are able to look from the outside so that the perspectives work to cover one another’s blind spots.
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