Title: The nuts and bolts of running an effective board

Sub-title: There is no one best way to get the most out of an SME board. Much depends on why and how it was set up.

In many ways 10^th Power Technologies Corp. is a typical technology start-up. The company develops and markets software that enables organizations to better manage identity verification, communication and workflow problems. 10^th Power recently streamlined its business model to focus on key products including a technology suite marketed to military environments and applications that enable companies to minimize their risk of data leakage.

The only problem says Guy Burry, one of its key investors, is that business is changing so fast, 10^th Power needs a good way to make sure new products target viable market niches. “As a young start-up, we are heavily focused on sales,” says Burry. “To help, we set up an advisory board made of key industry professionals, to provide feedback regarding how our development efforts are going.”

According to Burry, who has already served on dozens of boards, 10^th Power’s five-member advisory group will act separately from its formal statutory board and will be phased in gradually. Right now, the company employs just 20 people and has a market capitalization of just $20 million. As a result, members will initially provide advice to management informally through ad hoc individual contacts.  Later, as the group solidifies, it is expected to hold more formal quarterly meetings.

Boards are different, so strategies differ

According to Donald Riendeau, a management consultant who specializes in governance issues, the challenges facing 10^th Power are similar to those of other small businesses. “SMEs tend to implant governance structures gradually, on an as-needed basis,” says Riendeau. “For example an entrepreneur may initially simply consult family, friends and business contacts for advice. Later, as his business grows, he may add an informal advisory board, whose role may formalize as the business grows. As new investors are brought on, a final step could include the implementation of formal statutory boards of directors.”

Brian Lafarge, an entrepreneur whose several years experience in money management, has provided him with broad insight into how boards function agrees. “The key is ensuring that the board is fulfilling the company’s needs on an ongoing basis and not slipping into a cosy “club” structure,” says Lafarge. “For example if everyone on the board is a financial expert or a lawyer, the group may not add as much value as if it were more broadly diversified.”

Laberge also counsels SME board members to carefully manage group cohesion. “Unless an attitude of trust and openness prevails, management could start holding back information or deliver it the last minute,” says Laberge. “This could result in “rubber stamp” decision-making, the quality of which may be open to doubt.”

Another pitfall to watch out for says Laberge is to ensure that members look out for the interests of the company first. “When board members are selected primarily because of their personal holdings, the distinction between what is good for them and what is good or the organization can become blurred,” he warns.

Laberge also counsels entrepreneurs to keep boards small. “If there are too many people, not everyone gets a chance to speak,” says Laberge. “Worse, members begin to feel less involved, and the meetings drag on.”

Sidebar: Running an effective SME board of directors

According to Donald Riendeau, because SME advisory and statutory boards can vary so much in size and scope, few lists of “best practices” apply in all circumstances. However Riendeau provided some insights into how entrepreneurs can run and effective boards:

-         Subtly convey the impression to board members that they need to step back at the business as a whole and not just to turf issues. 

-         Set up a formal agenda and voting procedures

-         Meet between once and 12 times a year. For SME advisory boards, Riendeau recommends four to six times a year for not more than tow to four hours.

-         Keep minutes and follow up on unresolved items

-         Be honest and open, provide board members with as much information as possible.

-         Since most administrators reach their full potential after three to five years working in a new business, it pays greatly to retain qualified candidates.

Peter Diekmeyer is a Montreal-based freelance economics writer.

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