Getting down to business: Governance - why your company needs it
When people think of governance in New Zealand, they often think of compliance and a committee overseeing the rules and regulations of your business. With that connotation in mind, entrepreneurs often don’t give governance a second thought. However having a board made up of trusted advisors with skills you lack can be the difference between your business simply ticking along or your business making the Fast 50 index!
At the Fast 50 Festival session on governance, we were joined by seasoned director, Susan Peterson (Xero, ASB, Trustpower and Vista) who helped establish Organic Initiative in 2015 and Henri Eliot, founder of Board Dynamics and one who has ‘retired from more boards and institutes than most people have joined’.
Below, Susan has offered up her thoughts and perspectives on the role of governance and the advantages it can have.
Who makes up a board and how big does it need to be?
Susan says an effective board comprises of those who can support you to confront the ‘hard truths’ you may not want to hear and might simply be two or three people who have the skill sets that are essential, that you lack.
"No business will ever maximise its potential when it is only resourced with the skills and capabilities of one individual," she says.
In Susan's case, when setting up Organic Initiative, the business was founded and managed by an exceptional sales guru who could 'sell sawdust to a lumber mill’. However, the owner was wise enough to understand that the business needed a raft of other skills and capabilities if was to be able to maximise its potential.
For example, the credibility behind the brand rests in organic and fair trade accreditation so they invited an experienced auditor to join the board to ensure the product integrity continued to meet standards. In addition, they appointed a medical specialist as the company’s Chief Medical Officer to provide integrity to the medical benefits of the product.
Do I need to pay a board member?
"Not necessarily," says Susan, “Many people are happy to contribute their time in exchange for equity at the beginning and others may be comfortable with an agreement that they will be paid once the company has reached a certain size and scale.”
How long do board members sign on for?
Susan says that the type of leadership needed for a certain type of company is likely to change over time. For a fast growing company, the skills that are needed may change as frequently as every 18 months.
Implementing structured board appointment procedures is also important, says Susan.
"So with that in mind, it might be a good idea to have an appointment term for directors of 18 months that can be renewed by mutual agreement at the end of that period. This also means that there is an excuse for a regular review and a dignified opportunity for exit if their skill set is no longer required".
“And if things still aren’t working once you switch your chair or board member, then it’s important to have sufficient self-awareness to ask yourself whether it is in fact you, who is the problem!”
What attributes do board members need to have?
Networks are hugely important for board members and many companies don’t hire people unless they have a wide span of contacts across the industry they’re in. Susan says, "the more effective directors will have extensive relationships with people and be able to draw on their wider networks as needed".
Due to this, if your business has global ambitions then it’s important to have a global mind set when hiring board members. The New Zealand pool can be small and the pool of people with experience in going global is even smaller. So having someone with local connections in your targeted offshore markets is critical.
What does a good chairperson look like?
According to Susan, they’re calm, great listeners, well organised and tend to prefer the approach of facilitating others ideas rather than simply sharing all of their own
"The most effective chairs are decisive but relentlessly kind", says Susan, who notes that having this quality in a chair goes a long way in terms of them being able to manage meetings, communicate with others and take those tough conversations.
How do you attract good board members?
Susan says that it’s about asking capability and behaviour based questions in the interview stage with things such as ‘how do you see your role and contribution to the business?’ and ‘how do you like to operate in a board environment and what are the styles of others that you consider to be least effective and best avoided?’
It’s those really gritty questions that will give you much more valuable insights into what it might be like to work with the person before you actually commit to working with them.
"These relationships are important and need to be made with requisite diligence and care," she adds.
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14 November, 2017 by Emily McLean,
Emily McLean works in the Deloitte marketing team and closely with Deloitte Private. She loves telling the stories of those individuals and businesses leaving their mark in New Zealand's SME space while delivering news and insights to help business owners grow their companies.