Ethos Business Law

Unfortunately, many private companies don’t pay close attention to the importance of a strong board of directors, including who to put on the board.  Owners often think of this role as perfunctory and/or not necessary.  On the contrary, a strong board of directors can be vitally important to a small, medium or large company and depending on the size of the company, the board can play different roles.

The basic purpose of a board of directors is to have a group of individuals that are selected by the owners of the company to jointly oversee the activities and business of the company.  This can include governance issues, overseeing senior management, determining strategy, providing advice and direction, setting goals and priorities and other roles based on the needs of the company.

In small and medium sized companies, a strong board of directors can provide mentorship to management, networking opportunities, growth connections and can help build and establish important relationships.  For larger companies, in addition to the previous advantages, a strong board can provide corporate oversight, help manage risk, hold management accountable and provide independence.

Selecting the right members for the board is very important.  Often times, a natural instinct is to add your friends and family or your corporate attorney.  Here is an interesting post on why not to add the company’s attorney.  I tend to agree that it is not the best idea for the corporate attorney to also sit as a director.  I feel the same way with family and friends.  While it is an honor to sit on a board, reserve that honor for someone that can offer advantages to the company.  Challenge yourself to look outside your four walls for directors.  I tend to favor industry experts, local business people, banking or finance experts, marketing experts and/or other people with skills or relationships the company can leverage.  A good board can act as an extension of the company, so when looking at directors, you may want to focus on areas that will benefit the business.  Here is an interesting article on board considerations from the Harvard Law School blog.  Although it is more focused on public company boards, the principals can be applied to any board of directors.

Tags: Board of Directors, Business Law, Corporate Governance, Professionals, Stock

This entry was posted on Friday, April 17th, 2009 at 11:19 AM and is filed under Corporate Governance, Professional, Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.