Insights

The Best Way To Structure Your Boardroom

Tuesday 27 April 2021

This article is all about the boardroom and the importance of the chair and the non-executive in your business.

Knowing how to find the best sort of people for your board can be a tricky task for the entrepreneur so I want to share some of my experiences with various boardrooms to help you figure out who you want to have on the board and how to spot the ones to avoid.

So, where do we start with the board? 

The boardroom composition

In an SME, you normally have the entrepreneur/CEO and his or her management team who sit on the board. This team can be made up of sales/marketing directors and/or finance directors but where possible, it's a good idea to widen the management team and add new people with different experiences because it helps to engage the whole team on a wider level.  

Along with the executive team, most successful companies have an independent chair who’s a non-executive. This means they don’t have an active role in the company and aren’t part of the management team or the day-today running of the business. I’d recommend entrepreneurs only appointing a chair who has been there, done it and got the T-shirt in their sector of business, because they need to understand the business they are chairing in order to provide the entrepreneur with real value.

However, it’s not uncommon for some investors to put themselves or somebody from their company in as a chair, but you need to try and avoid that if you can.

The person you appoint needs to be independent of the management team, but they need to be somebody from your sector who’s got the real, solid experience, not just someone from a private equity firm who only knows how to run a business from a spreadsheet.

 

The role of the chair in an SME

The first thing to remember about the role of the char is that their role is heavily intertwined with the entrepreneurs. This means the chair needs to really understand the entrepreneur on a deep level because if they are out of touch, and the entrepreneur isn't performing as they should, the chair needs to address this quickly to keep the company on track.

This is crucial because the chair’s responsibilities are to the investors and the management team, not just the CEO.

So, if the CEO/entrepreneur is out of touch or not performing, it’s the chair’s role to deal with them for the benefit of the company. But I don’t want anybody getting the wrong idea here...

Even if the CEO is sacked from their position, that doesn’t mean they lose their shareholding. In some cases, stepping back and letting someone else take the helm can be a really good thing. The former CEO can focus on another role they enjoy or are better suited to, and the new CEO can take the company into that period of  high growth – everybody benefits!

So the chair wears two hats. One is to keep investors happy, the other is to look after the management team and make sure they are led in the right direction.

In my experience, I’ve tended to focus on the management team first because if you get that right, and they’re successful, then the investors are happy.

 

The real value of the chair lies out of the boardroom

The thing about board meetings is that they are a very professional affair. There is a certain formula and structure to the agendas  which need to be followed which is great for discussing day-to-day strategies. 

That’s all the formulaic stuff, which is really useful, but the real value of the chair/non-executive director happens outside those meetings.

It’s at a personal level, during a coffee or a beer in the pub, where they can give you the best advice and can challenge your leadership in a helpful and supportive way.

The keyword here is helpful.

 

What makes a good chair for your boardroom?

One of the things that I don’t like is the egotistical, unhelpful chair. You often find with some immature non-executives or chairs that it’s all about them. 

They’ve got this big ego because they’ve been successful and that’s why they’re on the board. Everything is about them when, actually, it’s all about the entrepreneur and the management team being successful, not them at all!

What’s the point in scoring points at the board meeting? The inexperienced non-exec will ask difficult questions to show the investor that he or she is on their side and will try pulling up the management team. 

But that’s not what makes a good chair.

They should be supportive of the entrepreneur. Asking questions is great, but the chair can ask them in a way that’s helpful, and if they need to challenge the entrepreneur, it should be outside the board meeting in a way that provides value to the CEO and the business.

 

Finding good board members is an objective process

When it comes to bringing in a chair or non-executive for the company, it’s not just about finding someone with good business acumen and experience. 

To make sure you are bringing in the right person, you need to stand back and look at where the business is going from an objective viewpoint. For example, if it’s an online business, and you haven’t got a particularly strong CTO, you might put a technical person in as a non-executive director.

On the other hand, a sales-driven business might put a sales/marketing director in that place instead. You need to decide what the business requirements are before you go after the person, not the other way round – that is critical.

 

The beer test

There are also personality requirements that need to be considered when structuring your board. No chair or non-executive director should be appointed without first having a social interaction with the entrepreneur. 

I would always encourage any company to do what I call a “beer test” before bringing them on. Go grab a beer (or maybe a coffee) with them and have that social interaction first, because if there isn’t any chemistry, it’s not going to work out.

 

EHE Capital supporting the entrepreneur 

One of the main messages I want to get across here is that finding the right people for the boardroom who can really support the entrepreneur is key. At EHE Capital, we feel that sometimes, in some investment deals, the entrepreneur is not supported as much as they should be which is a shame.

One of our core principles is to make sure that they are given all the help and support they need to move into that period of high growth. If we are the right people to help with that, then great! If not, then we will go out to our extensive network and bring in the right people with the right sort of experience and personality who can support them instead. That's another great benefit of having someone on the board with a lot of experience in your sector. Their black book will be full of tried and tested people who can fill some of the other roles you have in the company.  

In this way, we act not only as investors but also as advisers! We genuinely want to support the entrepreneur who made the company successful in the first place and help them achieve the next stage of growth for their business, not just with money, but in personal and business support.

If we can find the business owner a non-executive chair with sector experience, and maybe one or two non-executive directors with the right skills, the business and the entrepreneur become more successful. It’s a tried and tested formula, and if you get the ingredients right, you’ll be on the right track for fast growth! 

For a more in-depth discussion on EHE Capital and how to structure your boardroom, check out episode seven of our podcast “Extraordinary Entrepreneurs Together”. Alternatively, you can email us with your questions at gary@ehe.capital.

JOIN THE EHE ENTREPRENEURS COMMUNITY

Our first offering is free personalised, curated news, both here on the website, and in a daily / weekly digest direct to your inbox.