5 Reasons Why Every Company needs a Board of Directors

Why Do We Need Boards?

1. Skills & Expertise

Your business may not have all the skills & expertise needed to operate effectively and continuously in an ever-changing environment. A Board of Directors (BOD) will help the senior leadership to step back from the daily operational grinds and focus strategically on its business.

Board members (directors) that bring expertise from Strategy, Finance, Legal, Marketing, ICT and specialized industry / product related skills are almost always sought after. Other directors can bring along business contacts and networks, especially relevant for start-ups and high-growth companies. Boards also stand to gain when they have Gender, Demographic and Cultural Diversity.

 

2. Corporate Governance

“A company’s Corporate Governance structure is critical for its successes. Think of Corporate Governance as a system of rules, principles and processes by which your company is directed and controlled. They are guidelines as to how your company can fulfill its goals to enhance value.

Corporate Governance also provides a framework for balancing the expectations and interests of the many stakeholders in your company – which include your Shareholders, Board of Directors, Management, Employees, Customers, Suppliers, Financial Institutions, Government and the Community”.

 

3. Independence & Accountability

Boards are (or at least are expected to be) independent, act only in the interest of your company, free from conflicting interests that can compromise their judgment and be able to take a solid stand in the face of opposition.

The Board of Directors has a dual mandate of Advisory and Oversight governed by their fiduciary / legal responsibilities. They are collectively or in rare cases even individually accountable for your company’s performance, compliance and risk mitigation strategies.

 

4. Strategic Direction

This is not a misplaced typo. I firmly believe that Strategy is as much a responsibility of the Board as it is of your senior management and leadership. The level of involvement of the Board however may vary depending on the size of your company.

Rather than just being a “rubber-stamp”, engaged Boards take a lead role in devising Corporate Strategies, ensuring that the company and all its departments are aligned towards its Strategic goals at the same time monitoring proper implementation and execution of these Strategic Plans.

 

5. Credibility & Legitimacy

An effective Board portrays integrity and availability of balanced objective advice which helps mitigating risk. Financial Institutions, Investors and partners view it favorably, which effectively lowers the cost of capital financing for your company.

Customers, employees and vendors view it as a safeguard of their interests. The ultimate protection of interests of various stakeholders of your company due to the existence of Boards further increases the Credibility of your company. This in turn can also be beneficial for owners / investors planning an exit strategy, make an Initial Public Offering (IPO), or further scale and grow the business.