by: Nick Siegel
I could make up a terrific story about this, but I won't lie - I had avoided (as in postponed, side-stepped, procrastinated) having a board of directors until now. Frankly, I had visions of having a group of old, cranky, humorless men telling me what to do.
Of course I was just being lazy, too. I would rather be out making products and building a business than sitting around trying to make sense out of Excel files, charts and graphs, and essentially being bored to death in the process.
Our company, however, has reached the point where "proper governance" is important...even necessary. The "let's do it because we all think it's a really good idea" mentality had to go. We really needed to be able to show that all of our shareholders were represented in our decision making - and represented fairly.
So I asked my business mentor and close friend, who knows and understands our industry very well, to be the first member of the board of directors. Now let's be clear - I didn't ask him because he's my "friend." That would have shown very poor judgment, and frankly, friends don't always make the best business advisors. I asked him because he's already the one person who advises me on all "board-type" matters, anyway!
So imagine this: I felt like a "big grown-up boy" in long pants, carrying my briefcase filled with notes, reports, Excel printouts, etc., to my first board of directors meeting on Friday, February 15, 2008, at 2 PM ET.
If you are picturing a large dark paneled room with a long table, think again. Outside our "boardroom" were chickens, squirrels, birds, and other creatures - large and small, wild and domesticated. Inside the "boardroom" (besides the board members) were a dog (a.k.a. The Wolf), two cats (a.k.a. Puffy and Fluffy), and five children. Yes, we were in my friend's home, gathered around his kitchen table.
Maybe someday we will meet in that dark-paneled room with a long table. But I don't care how big my business gets - I hope we can continue to meet with the same "family feeling." There was a certain calmness, almost a serenity, about the entire meeting. There was nothing stuffy or even formal, although we did follow the rules of a proper meeting.
So my first board of directors meeting started with a brief lesson about what exactly happens at board meetings! My friend and mentor gave a simple, five-minute explanation of what board meetings were all about...and in the process, he completely changed my preconceived ideas. That's what I really want to share today.
What Do You Think Is Supposed To Happen At Board Meetings? - Company planning strategy?
- Hiring strategy?
- Financial planning?
No, no, and no. Those are the things that I THOUGHT were supposed to happen at a board meeting, but was I ever wrong. The things listed above are the territory covered by company management...not the board of directors.
The board of directors has exactly one responsibility, and that responsibility is...
Just like a sovereign nation, each company has what they call "articles of incorporation." These "articles" are actually the laws - or rules - that the management of the company must abide by.
So the whole purpose of the board of directors is just to make sure those laws are followed. The point is for the board to make sure the decisions that are made in the day-to-day operation of the company are really in the best financial interest of the shareholders.
Of course, not ALL of the decisions that are made by management are the right decisions - anyone can be wrong, it's inevitable. But the decisions have to be made within the laws laid down in the articles of incorporation. They can't be sneaky decisions, they can't have malicious undertones, and they can't be decisions that line the pockets of management at the expense of shareholders.
Here is just one example of the type of responsibility shouldered by the board of directors:
The board does not decide who is hired to fill a position. The board simply "empowers the management" to pursue that hire. It's still management's job to make the final decision about who is hired to fill the position. The board only acknowledges that they understand why the position has been created and filled.
The board of directors GOVERNS. It does not strategize.
So in the end, I didn't need all those spreadsheet printouts and detailed notes. What I did need was exactly what I got - a lesson in how to think about shareholder value, while simultaneously running the company.
About The AuthorNick Siegel
The Mystery CEO is a young entrepreneur who started a company now doing close to $2 Million a year right in his DORM room!
Now he lets you watch over his shoulders as he learns more about entrepreneurship. You can even listen-in when he interviews CEOs who manage $100 Million+ companies!
Read his entrepreneurship blog right away for all the entrepreneurship training you'll ever need!