So you think a board position may be just what you’re looking for, but you don’t know where to begin – right? It is common practice to make your starting point an industry that you have genuine interest in or where you have experience to bring to the table. To be effective on a board, the industry, company, and market space should excite you as you will be required to read and develop significant background knowledge about all the internal and external factors influencing the success of the organisation.
It is also crucial to understand the differences between the various types of boards. Depending on what stage of development a company is at, the board requirements in skill and time commitment will differ greatly. No matter what type of organisation you are looking at, board members are there to represent the interests of the shareholders and support the management team. All types of organisations can have boards – from start-ups looking for expertise to help them get to the next stage and family businesses that are well-established to mid-level companies, large multinational corporations, and non-profits. In all cases, the board of directors is a highly regarded oversight committee.
The Different Types of Boards for Firms at Different Stages of Development
Private Companies
In the case of for-profit companies, there are generally private boards i.e. boards that sit on private firms. These can include start-ups. When a company is new and the team and structure are not quite mature, it is considered a start-up. In a start-up company structure, the board commitment tends to be quite detail-oriented and hands-on. Board members are called on for their expertise and contacts, and often asked to be very involved. It is quite common for start-up boards to ask directors to invest in the firm or commit to fundraising to help finance the operation.
The more the organisation matures, the requirements of the boards differ and mature as well. For public companies, the board structure is much more formalised. These boards will usually look for guidance and support from board directors, and often require that you sit on a working committee. The general guidance for mature corporate boards is for the directors to take a guidance and oversight approach, and be ‘eyes in, and hands off’ with operational matters.
A family business is also considered a private firm with boards. These firms will also have a varying degree of need from independent board directors. The special relationship with the board in these organisations requires managing and often navigating multigenerational family dynamics, where there is a strong emotional and historical investment in the firm.
Non-Profit Companies
On the other hand, non-profit organisations generally require much more time and support from their board directors. They need directors that are more involved in the day-to-day business affairs. Instead of being ‘hands off’ like corporate boards, non-profits want active board members who enthusiastically engage and influence the day-to-day activities of the organisation.
What Is ESG and Why Is It Important?
Boards help ensure that an organisation is well managed. In this day and age, that means a board that treats people the right way and engages in good business practises that benefit shareholders, stakeholders, and society as a whole. In recent times, the term ‘ESG’ – which stands for Environmental, Social, and Governance considerations – has become extremely important on corporate boards.
Environmental consideration relates to how the organisation’s practices contribute to environmental issues. The more thoughtful the consideration for the environment, the better. Often, this is referred to as sustainable practices. Social consideration relates to how the organisation treats employees, customers, suppliers, and society at large. Governance, meanwhile, is all about implementing clear, transparent frameworks and analytics supported by robust governance and operations structures. It is paramount for keeping the company true to its objectives and values.
In recent times, the importance of ESG considerations has ballooned. It is used as a key investment marker for investors, and ESG data is often used to identify superior risk-adjusted returns versus a business poorly prepared for the future. Large investors have pulled large sums of financing and firms for ESG reasons. For example, Blackrock is one of the world’s largest investment management firms with over USD 6.84 trillion under management, and has recently made strong statements regarding new stringent requirements of firms to take ESG seriously. Blackrock sees ESG as intrinsically tied to the economic value and long-term growth strategy of every company.
What Is the Time Commitment of Being on a Board?
Outside of committee work, boards generally meet two to four times a year – but this is usually just the beginning. To be effective on a board, you should read the board reports provided by the business leadership. These reports highlight working issues and the progress of the company. As a board director, it is also extremely important to stay current in your industry. You are considered stewards of the strategic direction of the company, and you are expected to know what is happening in your market and with competitors. Additionally, effective board directors need to take an active role in getting to know the senior leadership of the company and developing a good feel for what life is like in the organisation.
What Is the Right Board Structure for You?
If you’d like to roll up your sleeves and be an active part of the oversight and running of things, a not-for-profit board or start-up board may be up your alley. You will be called on regularly to help provide on-the-ground strategic guidance to the management team. For those of you who want to provide oversight but keep a distance from the company’s operational details, then a mid-level company board or corporate board could be your thing.
This would offer you the opportunity to leverage your strengths and skills from a distance. You will be required to attend quarterly meetings and perhaps sit on a committee. Either way, board service comes with a commitment. Every board will outline just how involved they need board directors to be, which provides every director the opportunity to choose a structure that suits their schedules and commitment capabilities.
For an introduction to what the role of a board is and specifically what role you can play on a board, read Audrey’s article, Have You Ever Considered Board Service?
