At last week’s Entrepreneurship 101 lecture, Advisor David Pasieka talked about how boards of directors and advisory boards will affect your start-up. We learned what business governance is and what entrepreneurs need to know.
Many recent failures of corporate giants – Enron, Nortel, Hollinger – can be traced to dysfunctional governance (see this Wall Street Follies diagram for an example) and from the ashes of such meltdowns entrepreneurs can learn crucial lessons.
David talked about the common problems that lead to governance failure:
A board of directors is a legal structure whose members have specific duties and obligations:
Establishing a board is a mandatory for an incorporated business: all corporations have at least one director. Before incorporation, advisory boards may play the larger role. Advisory boards are less formalized (although many large companies still rely on them) and might simply be made up of family members, friends, colleagues, expert you know, or any stakeholder with a keen interest in the success of your business.
But as your business grows, and especially if it goes public, a board of directors typically gains influence.
As such, Pasieka says that getting the “board chemistry”, is crucial. It’s important that directors know exactly what their job entails.
The best boards are able to act in a happy space between a “rubber stamp” – a board that has ill-prepared directors, infrequent meetings and an all-powerful CEO – and a “micro-manager”– a board with an overly demanding schedule that tends to strong-arm the CEO and overflows with distracting committees.
Downloads and resources: