Mistakes can be harmless or excusable and embarrassing, but some can crash your company and end your career. Here is the list of top mistakes that board candidates make.
Board of directors in corporate structure
The board of directors is a collegial body for strategic business management. It necessarily includes independent directors – people who do not work permanently in the company (they, like other members of the board, receive a fixed remuneration for their work and a bonus at the end of the year). He has powers primarily related to the strategy and appointments of top managers. Board members are responsible for their decisions.
Today, with innovation and enterprise growth becoming the main concern of management, and new business trends are changing at the speed of light, a board of directors focused on strategy and partnerships with top management can be an important competitive advantage for the company.
What are the common mistakes of board members?
The boards of directors often consist of owners and hired top managers who have been with the organization for a very long time. They are unlikely to be able to bring new ideas into business after 15–20 years of work in the company. The lack of independent directors on the board is the biggest mistake organizations make. And not the only one. What mistakes are most often made by the owners of the company when forming the board of directors? They are as follows:
- The board of directors makes operational decisions
The board of directors develops a strategy and controls its implementation. Operational management should remain with management. But many do not share the authority. In practice, the council often includes the owners of the companies, and if the business is included in the holding, then often the employees of the management company. If the board members don’t like something, then either the management has deviated from the strategy, or the strategy needs to be rewritten. It does not work in another way – the body meets every few weeks, and manual control on its part will only slow down the company. Therefore, the council should focus on finding the right director, creating adequate working conditions for him, approving an effective strategy, and monitoring its implementation.
- A board member is a position, not a role
Very often, the owners and employees of the company are on the board of directors. In this case, they are faced with a difficult task: entering the meeting room, they are forced to enter into a completely different role. Employees need to switch from operational to strategic issues, put themselves in the helicopter view. And the owner needs to get used to the idea that he is now also “one person – one voice.” If the owner still needs the board of directors, but at meetings he cannot but impose his point of view on everyone, then it is easier for him to leave the board. And to remain simply the owner, retaining some of the powers of the highest level and the right of veto.
- Annual profit motivation
In hundreds of companies, CEO motivation is tied to annual profits. The owners do not understand that this leads to disastrous consequences: after all, if, say, sales deviate from the plan, the director begins to cut costs for the sake of his annual bonus.
But motivating board members with a percentage of net income is even worse. The task of the council is strategy, and where it is more correct to tie the remuneration of its members to the indicators of strategic development.