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Boards are not only for listed companies

By Jerry Nyazungu

IN my interactions with a lot of entrepreneurs, I have noticed a common trend whereby most people are afraid of relinquishing control. Yes, although I partly agree that it is entrepreneurial nature to want to wear many hats and do a lot of things, I believe this limits growth.

This is why most Zimbabwean businesses donot survive beyond the founder or owner.

This is in itself a cause for concern because if you look at first world countries, you will realise that building, preserving and transferring generational wealth is a key attributes that make these countries successful.

Whenever I get the opportunity to chat with an entrepreneur, one of the questions I ask is if their company has a Board of Directors in place. Whenever I pose that question, I always get a shocking starethat says the person never considered having a Board of Directors.

The reason I always pose the question is not to see their reaction.It is because having a Board of Directors is one of the most important things for any business, if not the most important.

When is the ideal time for a business to have a Board?

When you have a conversation with most people leading SMEs in Zimbabwe, the general sentiment is that you need to have a Board when the company is listed on the ZSE or making six or seven-figure revenues.

This is not true.

The thin line between your company making a four-figure revenue and a seven-figure revenue is the Board of Directors that you choose.

What this means is regardless of the size of your business, you need a Board of Directors. What might differ is the experience of board members based on the size of your business but just having those people guiding and advising you in your entrepreneurial journey is of essence.

Going forward, if you had the notion that Boards are only for listed companies or large private enterprises, you should dispel it and start looking for board members for your company regardless of size.

Purpose, role of the Board?

You might have some questions as to why you would need a Board of Directors considering that your business is only an SME. When you look in detail at the role the Board of Directors play in any business, you will realise that most roles are universal and apply to any business regardless of size.

If I am to describe the purpose of the Board of Directors in one sentence, it would be to ensure the company’s success by directing the company’s affairs.

The Board of Directors is there to help your SME succeed and grow into a large enterprise.

Some of the roles played by the Board of Directors and board members include:

  •  Providing direction for your organisation

In most cases, a board will comprise of key experts in different functional fields who will help you with advice to help provide direction for your organisation. This speaks to the strategic part of your business including your vision, mission and goals.

  • Establishing a policy-based governance system

One of Zimbabwe’s top entrepreneurs, Strive Masiyiwa always speaks of the 3 – Ps. There are people, product then process. As the founder, you might have figured out the product but to get that product to the market, you need processes and governance which is what the Board can help you map out.

  • Management

The board in part plays a management role through recruiting, retaining and compensating the person in charge of your organisation. As the founding entrepreneur of the company, you might be wearing many hats but should you step down or pass on, it is the board that will be responsible for replacing you in line with the governance system of the organisation.

The above three are some of the most important roles played by the Board of Directors. As you can see, those are major responsibilities which bring in the question of who should be on your Board of Directors.

Who should be on your board?

This is a frequent question whenever I explain the concept of a board to entrepreneurs or people leading SMEs. Any business that is successful today is so because it figured out five things which are;value creation, marketing, sales, value delivery and finance.

Now, in building a board, especially for an SME, you need a person with the expertise to represent each of the five parts if you want to scale to the level where you become a large enterprise or publicly traded company.

Value creation

If you are the founder, by default, you should be part of the board. The part of value creation should always be reserved for an insider in the business that is the CEO, general manager, managing director or founder who understands the value creation process of the business.

Marketing

After you have the first member on the Board handling the value creation process, you need a marketing expert to help you market the value to potential customers. You need someone who understands marketing, who knows how to get products or services known by consumers. This person will help you formulate the marketing and awareness strategies at the board level.

Sales

Marketing and sales are two different functions of a business and there are times when you have one person handling both functions at the board level but you should always try to separate the two whenever possible.

The person responsible for the sales function on the board should know about customer acquisition and retention strategies or in simple terms, how your company can get and keep customers.

Value delivery

This is a role that speaks to processes. Essentially, what this board member will be responsible for is how the company can build systems to effectively deliver the value that has been created, marketed and sold. You should reserve this role for someone who has successfully held a key management role or an entrepreneur who successfully build their business.

Finance

You need an accountant. For your business to be successful, you need to be able to make a profit which is what you can use to scale and grow the business. This board member is the one who will ensure accountability when it comes to money for the business. He is the one who ensures that the shareholders or founders are separated from the business financially which if not done always ends in disaster.

Many other board roles are important including, legal, and HR affairs but for a start and growth as an SME, if you fill your board with the above, then you would have set your business on the perfect platform for growth.

Tips on  choosing  board members

When it comes to choosing board members, I always recommend going with the IEE formula.

  • I — Independence. You need to have people who are independent of the organisation. Who would be able to tell you the truth when you are steering off track and who will be able to keep you accountable. The independence also applies even if you are not the one managing the organisation.
  • E — Expertise. Expertise is important. According to the functions I described above, you need board members with expertise who will offer you key insights into the above functions when laying out the strategy for each of the functions.
  • E — Experience. Someone with experience in each of the above functions will also come with the networks that will help your business scale easier and faster. It is important especially on the Board level that expertise is backed by experience which makes growth easy.

In conclusion, as an SME, a Board of Directors is one of the most important things to have as it will give you an edge through the valuable advice and expertise you will get for your business.

  • Nyazungu is an entrepreneur, seasons accountant and business expert. He is the founder and chief executive officer of M&J Group. boardroomtalk@icd.co.zw The article was published in the Boardroom Magazine, an Institute of Corporate Directors Zimbabwe project done in partnership with the Zimbabwe Independent.

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