Many fledgling companies follow similar patterns of development as they evolve from the point of inception through to ‘maturity’, and this is typically reflected in their board structures.
There is no right way to build a board from scratch however, there are things even a fledgling board should consider.
Boards drive companies. The board of a company, regardless of size, needs to understand its purpose. This in turn drives strategy and indeed the skills needed for the board to be appropriately structured and, more importantly, effective.
Start-up companies for example commonly rely on the vision and capital resources of the founder to begin with. They are often vulnerable and the primary propose is often driven by the need to survive the infant mortality period of a start-up business (typically 6 to 18 months).
The first top-level appointment is usually that of the Finance Director who takes responsibility for financial control aspects of running a business. These are areas such as reporting revenues and profits, monitoring costs, identifying trends and generating forecasts and budgets. This level of formality is often outside the experience base of the founder. As the business grows the finance director’s responsibility may expand into other aspects such as raising capital.
As the business continues to grow and the strategy evolves then other functional board skills are often acquired in areas such as marketing, operations. As head count increases, Human Resources may also be represented at board level. There is no definitive timeline for this but it is often a function of success and scale.
As the board grows in complexity there is often a lack of realisation within the board around its obligations in terms of leadership, risk, values and behaviours, obligation to shareholders as well as their legal and regulatory responsibilities. Experience has shown that the consequences of not getting these areas of board business right is not widely understood. For many board members they have ended up on the board through promotion by being good at something else!!! It is a little known fact, that pretty much anyone over the age of 16 years old in the UK can become a board director with no requirement for any qualifications or training. Regardless of business size a focussed programme of training and professional development can give directors a better insight into the complexity of their role and may help them decide what board structure is appropriate for the purpose and strategy of their business.