It is a process that cannot be taken lightly. The decisions you make on director selection can rapidly accelerate the performance of your company or create disharmonious leadership that wastes time.
In my personal experience, there are many inaccurate beliefs about what is important, as well as great uncertainty on how to approach this process.
Here are a few principles that will aid you in this important step in the growth of your enterprise.
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Letting go is tough
In your head you may have made the choice to embark upon governance and constitute a board; in your heart it will be extremely tough to let go of the perceived control you have had up to this point.
Crossing that chasm takes trust and courage. In a private enterprise, where as chief executive you are also the founder or major shareholder, this step is significant and challenging. As the saying goes, feel the fear and do it anyway.
Founding documents set the scene
Your primary reference point will be what your founding documents dictate in terms of director appointment. This will be your memorandum of incorporation (MOI) and shareholder agreement.
Typically, shareholders have the right to appoint directors in proportion to their shareholding and the board itself also has the right to appoint directors according to agreed terms. This sets the scene.
Who stays and who goes
In private enterprises, the major shareholders are typically also the executive directors of the company and would therefore appoint themselves to the board. Here lies the rub.
- Is it a foregone conclusion that all shareholders are also directors?
- If you could only appoint two executive directors out of four shareholder-managers how would you determine who is appointed?
- When we reach this point in implementing governance, how shareholders navigate through this decision provides great insight into how the process is going to unfold.
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The right expertise is critical
While it might be tempting to appoint non-executive directors who you know, or who seem impressive on paper, make sure that their actual expertise matches what your company requires.
If your goal is to break through a glass ceiling and double revenue to R100 million, choose directors with the track record of achieving this goal.
Be guided by commercial acumen and put aside awards and distinctions. Technical knowledge does not necessarily translate into business growth in the context of the age and stage of your company. Industry knowledge is not paramount and can work against you.
I cannot overstate how valuable it is to have independent directors on your board who are personally liable for the success of your company.
This outside perspective brings: New insight and expertise; a challenge to the dominant logic; a willingness to tackle the ‘elephant in the room’; and the creation of accountability frequently absent in SMEs and privately-held companies.
At least 50% of your board should be non-executive directors, of which at least half should be independent.
For example, if you had two executive directors, you could have one non-executive director (who is also a shareholder) and two independent directors.
Balance the natural energy
We refer to this idea of natural energy or the way you would most likely approach a decision in a critical moment.
If your board is mostly comprised of high ‘activating’ energy that drives progress, innovates and generate ideas, you may have a board that perpetually recreates the company’s vision yet never gets anywhere.
If it is all ‘evaluating’ energy, it will get stuck in analysis and risk-averse behaviour. Balance your directors across the different types of natural energy for a much more effective and integrated result.