By Guy Rigby, Head of Entrepreneurial Services, Smith & Williamson LLP

A growing business needs to think about its management and governance structure and whether it suits the particular stage of its development. In the early days, the ‘board’ will often consist of the founders, with no formal meetings and no real agenda. As the business grows, however, it’s normal for this board to strengthen, with both senior management and non-executive directors having a role. Using this structure, the board can grapple with strategic matters – for example making sure the business is serving the interests of the shareholders and other stakeholders – while the management team can be given the space to focus on running the day-to-day activities of the business. Put simply, the board works ‘on’ the business, while the management team works ‘in’ the business.

A board of directors is elected by and accountable to the shareholders, whereas the management team is chosen and appointed by the board of directors. As mentioned above, the board of directors will typically include senior members of the management team, for example the CEO, CFO and COO (the ‘executive directors’), and a number of external directors who are not part of the management team (the ‘non-executive directors’ or NEDs). It’s unusual for a board to be populated by the management team as a whole.

Adding value

The board is the most senior committee of the company, being the steering group that agrees the vision and values of the business and sets its strategy. Those who sit on a company’s board should be able to benefit the business through their collective expertise, experience, knowledge and contacts.

The board’s responsibilities are wide, but key areas include:

• establishing the vision for the business, guiding its operations and communicating its culture and values
• evaluating present and future opportunities, as well as identifying threats and weaknesses
• setting the strategy for the business
• ensuring that the structure of the business will enable it to pursue its strategy
• appointing and reviewing the performance of the company’s CEO
• evaluating the quality and capability of the management team and their performance in implementing and executing strategy
• monitoring the performance and liquidity of the business
• approving budgets and keeping proper accounts
• communicating with shareholders and stakeholders.

The board should be proactive rather than reactive. Members should not only have a firm understanding of the company’s core strategy and values, but also a good knowledge of the business KPIs, customer base, operating costs, financial and market position so that they can identify and flag up areas of vulnerability or highlight threats and opportunities.

Guy Rigby
Head of Entrepreneurial Services
020 7131 8213
Smith & Williamson LLP