Title: A board you can count on

Sub-title: Boards of directors and advisory boards can bring SMEs far more benefits than many entrepreneurs realize.

Ask any entrepreneur why they went into business for themselves and the answer is inevitably the same: they want to run their own show. So why would a small business owner want to work with a board of directors? There are a lot of reasons.

“My grandfather had a saying back when he ran this company, that when managers and ownership was the same, you need a board to protect you against yourself,” said David Ganong, president of Ganong Chocolates, a New Brunswick based family-owned candy producer. “Despite the fact that we are a private company, Ganong has had a board for as long as I am aware - 50 years, maybe even more.”

Jean-René Halde, president of the Business Development Bank of Canada, who had had substantial experience as a member of various boards during his long and varied business career, agrees. “A well-run board can bring significant advantages to a small business, many of which SME entrepreneurs often overlook,” says Halde. “Their importance, particularly in terms of the new perspective that they can bring, is being increasingly recognized.”

Ganong Bros., which was founded in 1873, is Canada’s oldest candy company. Based in St. Steven, New Brunswick, the firm employs about 400 people and exports a substantial amount of that production to the United States. According to Ganong, the independence of the company’s board, -- which stems in large part from the four outside directors who sit on it, -- has been a decisive element in the company’s long-term success.

“I bring most of my big decisions to them to get their feedback – which by no means implies automatic approval,” says Ganong. “In fact, we have had situations in which the business plan I submitted, was rejected and had to be re-worked.”

Advantages of a board of directors or an advisory board

According to one expert, boards of directors can bring small- and medium-sized businesses many of the same advantages that they bring to larger companies. “Many firms that want to grow fast, will eventually turn to venture capital funds for equity,” said Michael Nadeau, executive director of the Institute for Governance of Private and Public Organizations. “However VC funds will want to keep and eye on how things are going. Providing them a seat on the board is a good way of doing so.”

However Nadeau cautions SME owners that engaging a formal board may not always be the most efficient way to get started. “An advisory board, which carries no legal status, is preferable in many cases. For example, formal directors will want to be paid for their services,” says Nadeau. “However advisory board members, which often include old business contacts that the entrepreneur knows, retired business executives and others with either legal or financial knowledge who willing to pitch in, can often be counted on for informal advice in exchange for the price of a dinner.”  

Beverly Topping, president of the Institute of Corporate Directors, says that another advantage of starting out with an advisory board is that it can increase the pool of potential director-candidates. “Directors on formal boards have fiduciary responsibilities toward investors and with respect to some liabilities, which can cause concern among some potential volunteers,” says Topping. “However for the most part there are no legal implications involved in joining an advisory board.

SME boards: growing interest, despite tough times

According to Topping, one of the reasons for the increased interest among small- and medium-sized businesses for the benefits that boards can bring, has been that research in the field has yielded largely positive results. “There have been a number of studies that show that better corporate governance leads to in improved business practices and lowers risks to borrowers and investors,” says Topping. “This means that a company’s cost of capital is reduced which in turn means better bottom-line performance.”

As for Ganong, he continues to be more than satisfied with the role that the confectionary company’s board has played during current tough economic times. Although the recession has not affected demand for the company’s products, the run-up in the Canadian dollar has made it tougher to do business in export markets. “We had to cut fixed costs significantly as a result,” said Ganong. “The board played a big role in those decisions.”

On the other hand, the stronger loonie, caused many of Ganong’s competitors to consolidate operations south of the border and to close their Canadian operations. As a result, Ganong’s sales are up, despite the fact that others are moving in the other direction.

However if Ganong needs help in figuring out how to channel those extra revenues, the good news is that he can always turn to his board.

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