Your board of directors must be more than a coffee club
A board of directors is not just a requirement in an A/S. It can and should also be a resource that contributes with sparring and support for the day-to-day management. A board of directors must therefore actively contribute to the company’s growth.
According to the Danish Companies Act, private limited companies (ApS) can choose to have a board of directors. At the same time, all public limited companies (A/S) must have a board of directors (or a supervisory board). However, there is a big difference in how the board is put together and its role in everyday life.
Some still elect so-called “aunt boards”, typically in family-owned businesses. Unless everyone around the table has qualifications, other than being related to the company’s founder or current owner, it can often be a bad idea. Aunt boards serve more to preserve the family idyll externally and maintain the balance of power internally. They rarely contribute a lot to the company’s growth and development.
What is a board of directors?
We always recommend a professional board. This means a board that can work actively for the company and that comes with different experiences and strengths, all of which can be used in everyday life. It can be in law, sales, finance, management, marketing, or something completely different. The point is that the right board strengthens the business, helps find the direction and can contribute if the course goes awry.
At the same time, it is essential that the board – regardless of the number of members – are not clones of each other or the CEO. It is precisely the diversity and variation in knowledge that helps keep the company on track. The board must be an integral part of the business’ operations because the board does not just have the right to provide input; it also has a legal co-responsibility.
That is why we always recommend bringing people in from outside the company. Even if the company is still new and on its way. The experience and good advice from others can be extra valuable in a start-up phase. If it seems too overwhelming for an entrepreneur to enter with a professional board, you can, of course, start with an advisory board. But do not let it last too long – and remember that even for a company with more employees and even more years behind it, a professional board can function as a critical, strategic partner.
What is the price of having a board?
Of course, a board must also have an economic benefit of being a part of the company. Professional time costs money, and a fee helps ensure that the work is serious and that the commitment is in order. We find that this investment often repays itself several times over with a suitable composition of the board.
A professional board does not only contribute to strategy, focus and development. It also sends a strong signal to the outside world – whether it is banks, customers, or competitors: Here is a company that works thoughtfully and purposefully behind the facade.
Also, part of the picture is that a board challenges whoever is in charge of the day-to-day management. Primarily if you have been used to doing things without being challenged for several years, it will be a new situation. However, the reward and personal development amply outweigh the time needed to get used to it. Yes, you will get critical questions and must be able to defend your decisions. But for the company, it is only an advantage – and it is precisely for the company’s sake, the board sits there, not to stroke the director with the hairs.
Composition of the Board of Directors
So how should a professional board be composed? In short: With variety and preferably by finding members who are different to the owner/director. The board should not only advise and discuss, it should preferably also find new ways and open new doors. Therefore, broad experience – preferably in the areas where you as the owner are not so strong – is essential. A good board often has an extensive network, which can be valuable to draw on later.
As a lawyer, you are often asked to take a seat on a professional board – and there may be good reasons for this. One thing is legal matters, which it is vital to keep an eye on, but you will often find that a lawyer comes with experience from many other types of companies. It provides a vision for new solutions, combined with a broad network and an ability to analyse an issue in a structured way.
But the crucial thing is not what it says on the individual board member’s business card. It is equally important that you trust each other and in the joint support for the company and that the trust also provides space for discussions and disagreements.
In this way, the professional board becomes a resource and a catalyst for growth and development. Not a stagnant cosy corner with lukewarm coffee.