More and more companies in the small and medium business space are putting boards in place to effectively guide and direct the firm. In the best cases, this is a properly structured approach, with regular and scheduled meetings, clear agendas and minutes, good consideration of the risk and other strategic issues the business faces, and at least one independent, external director.
Such a governance mechanism – whether advisory or fiduciary – has been shown repeatedly by research to improve the profitability and sustainability of the company. In fact, some banks even use the existence of an independent, properly structured board in a client firm as a positive when scoring for credit risk, as they deem such companies as more credit worthy.
One of the hallmarks of good governance is “noses in, fingers out”, which is a simple way to communicate the principle that company directors should appropriately ask good questions (being “nosy”) about the business. Curiosity about how the company is doing, what the main risks are, what management is doing to maximize the opportunities and minimize risk is the clear domain of company directors, whether independent or internal (ie. shareholders).
The flip side of this is “fingers out.” Keeping out of the operations can be more of a challenge when some of the directors are less experienced, and are used to being engaged in the details. A good example is a founder who has stepped away from the day to day, and is now sitting on the board as an owner, giving them a way to oversee their investment in the business. In such a case, the founder is a shareholder (often majority) and a director, but there can be role confusion about their function inside the management of the company.
Of course, a founder who is also a director and shareholder can have an outsized impact when they speak into operational issues. Whoever is leading the company can be understandably frustrated when the former President or CEO makes operational decisions, or speaks to staff in a way that creates confusion and/or non-aligned communications. The staff also aren’t always sure how to take the “fingers in” approach. They may have had decades of doing what the founder has said – this isn’t easily undone, and especially if the founder’s role is no longer clear.
Having good conversations around boundaries of appropriate engagement of former business leaders inside the business can really help minimize frustration and conflict. Concern on serious issues (minutiae should be clearly offside) is understandable, and a channel through the current leader – whether at the board table or outside board meetings – is reasonable. Learning to ask good questions of such a leader (and not their staff) is fair and appropriate. Watching for situations which draw the former leader outside their governance role, and taking an early position of non-interference can make the new leader better, and the team less conflicted.
A logical question some founders have is “what do I do if I see something serious going wrong?” Discerning between serious and not-serious is the first step. The second is to go through the proper channel. If ongoing failures which are harming the company begin to show up, then it is a matter of performance management of the new leader, and this is a key board role.