Board Meetings – Valuable or Painful? /

I was reminded recently, at the first board meeting of a business we recently invested in, of many of the misconceptions that exist about the value and purpose of such meetings. Many smaller entrepreneurially led businesses do not operate with a board of directors and decision making tends to be more informal, often made by one or two key individuals.

The involvement of a private equity investor means this will change, and the board becomes an important mechanism for debating and agreeing key business decisions. The main misconception is that management believe the board is purely for the benefit of the investor, it is a medium for bringing the investor up to speed and also provides an opportunity to criticise the team for missing budget!

I have been actively involved in board meetings for the past 10 years and have the following insight for management teams on how I think you can ensure the board is a value adding forum:

• Think carefully about the agenda ahead of each meeting. Yes there will be more standard areas to discuss such as finance and operations, but don’t be afraid to discuss other issues such as the retention of key members of staff.
• The board papers will set the tone for the quality of the meeting. Enough time should be set aside to prepare and circulate the papers beforehand. There is no standard approach to what a board pack should look like as different businesses will have different areas of emphasis. These areas can include regulation, competition and supplier relationships.
• Don’t let the meeting be dominated by backward looking or corporate governance type issues. Performance will need to be reviewed and capital expenditure signed off but this should not form the majority of the meeting. The focus should be on the future. If a 3 year plan exists then the board should be discussing progress versus this plan, the potential areas of threat to growth and also what new opportunities might have arisen since the original plan was devised.
• The role of a non executive needs to be understood. A non executive is not appointed to run the business, this remains the role of the executive management team. The non executive is there to advise and challenge on the key decisions such as making an acquisition. By being independent and not involved in the day to day detail a non executive is able to step back and perhaps bring a more objective view on a particular issue.
• Often a business can be blessed with a number of opportunities and the risk is the management team want to pursue them all. A key role of the board is to discuss and prioritise these opportunities to ensure the business executes well on the ones that are most likely to add value to the business.
• How long should a board meeting last? That is a difficult one to answer and will depend on the agenda. However, in my experience 3-4 hours is the optimal duration. Often longer board meetings are the result of issues being exposed too early, and more preparation or thinking is required before a decision should be made. Here the role of the non executive chair is critical as he or she will recognise this, intervene and suggest what steps are required to bring the matter to a close (whether at that board meeting or another time).

Adopting some of all of the above should hopefully lead to better quality board meetings. Having said this I recognise that businesses are dynamic and not every key decision can be made at the monthly board meeting. The board must be willing to convene at short notice to make key decisions. I have used telephone conference calls on a number of occasions to agree a premises move, acquisition or to recruit a key staff member.
Contact: Paul Morris, ISIS / July 2012

The ideas and conclusions in this column are the author’s own and do not necessarily reflect the views of ISIS Equity Partners. They are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any investment.