The Board of Directors' alignment determines the success

How does the owner-manager get the best out of his professional board? 

Thorough, open and honest alignment of expectations creates the most value.

The maximal benefit of a professional board stands and falls with the owner manager's willingness to let go of control, and the ability to set the right board team - both in terms of industry experience and not least the interaction skills. But even the best team on paper needs a thorough, open and honest alignment of expectations if the board work is to be successful. 

The rules of the game should be aligned from the start

Even in owner-managed companies, the board of directors is the supreme governing body. It is elected by the general assembly, and by the employees when it comes to employee representation. The group of shareholders can be the owner-manager alone, but also co-shareholders such as family, executives or external investors. The Board of Directors reports to the general assembly, and the chairman must represent all shareholders when there are several. Pay also attention to the fact that the owner-manager can act as a shareholder, board member and director.

Alignment with the owner-manager is not enough. It is my personal experience that expectations must be matched on 3 levels to get all the way around:

1) Between the shareholders and the Board of Directors

2) Internally between the board members

3) Between the board of directors and the executive board, if it consists of more than the owner-manager

It sounds simple, but it is far from always the case, as there can be both obvious and latent conflicts.

It can for example be about:

1) Ambition level and performance requirements

2) Insight and business understanding

3) Willingness to take risks and patience

4) Expectations of role distribution among all involved

5) Board responsibilities, ethics and morals

Be clear about common realistic ambitions

Common realistic goals in relation to the market and the company's competencies are a must in order not to set off together on a journey that may end up wrong. It is also a good idea to have a clear agreement with the shareholders on the extent to which capital on the journey should come from the shareholders or the operation. The alignment of objectives and sources of financing is at the same time the basis for the board of directors to ensure the right management team to deliver on the objectives - including also assessing whether the owner-manager is actually the right one in the director's chair.

Without ignoring commendable intentions about stakeholder management and corporate social responsibility, one should recognize that the board's task is about the shareholders' agenda and not the board's personal ambitions, goals and dreams. The good board should, however, be a co-creator of the shareholder agenda or challenge the owner-manager's agenda as "the devil's advocate".

Create a common business understanding

Many owner-managers think they know their business and market like the back of their hand. They may therefore be reluctant to receive constructive criticism or necessary outside-in inspiration. But professional boards do not want to be "nod dolls". They are motivated by contributing their experiences and creating more value. Therefore, it is a good idea to spend time at the beginning of an industry onboarding, so that you together create a common business understanding as a basis for ambitious, yet realistic aspirations on behalf of the owner manager.

Do not let emotions control risk and patience

When the professional board takes over, new expenses and investments are often put on the agenda, and typically with a longer aim of return than before. Owner managers may experience a dilemma in saying yes to the investments and at the same time accept the result development in the investment period. Patience is challenged and can even be more of an emotional than financial nature because it is "own" money that is at stake. Here, the Board of Directors' task is to create credibility and confidence in the plans by using fact-based business cases and risk analyzes. The owner-manager should of course challenge his board on the quality of the strategic direction and priorities. But it is good practice that the dialogue is based on facts and valid rationales, and not on emotions. If the results are long overdue, it is a good idea to discuss and agree on fresh milestones, which you follow up and evaluate together.

Distribute and adhere to the agreed roles

In the owner-managed company, it is important to ensure a management dialogue, where it is always clear which "hat" the owner is wearing. The distribution of roles between the Board of Directors and the Executive Board must comply so that the Board of Directors can live up to the Board's responsibilities. The owner-manager refers to the board and should respect the board's decisions and not go his own way in the role of director. Despite good trust in its board of directors, it is still seen that owner-managers cannot relinquish the temptation. It is only natural that the owner-manager is tempted to the do-it-yourself solution. But it creates uncertainty about who has the ultimate responsibility for the company's results, and the board's motivation to help create value may decline.

Give the owner-manager time to look after his duties

Not only can the owners be impatient, also the board can. The active board should give the owner-manager and the management team peace of mind to carry out the tasks with the quality and priority that has been agreed. Avoid board members cultivating their own core issues simply because they have the time to get involved in day-to-day operations. Here, the chairman should ensure that the owner-manager is not chased between board meetings with follow-up questions and even more great ideas. The chairman, in turn, should be the guarantor that all issues are addressed via the one-on-one dialogue with the owner-manager and the follow-up at board meetings.

Do not compromise on board responsibilities, ethics and morals

The business climate is generally more unpredictable and riskier. A thorough alignment of what the board's responsibility entails in relation to the agreed common rules of the game is perhaps the most important thing. In times of crisis, such as now with Corona, the board and the owner-manager must take extra care, as the requirements for management responsibility are not relaxed, but instead tightened. Attention and timely care, more structure, more thorough decision-making and more documentation, come at the top of the board's agenda. The board must therefore be closer to the operation, and it is a good idea to prepare the owner-manager on this premise, because it is about the owner's "own money" and perhaps even the owner's personal finances.

Unfortunately, it happens that someone wants to bend the letter of the law more than is good. It can for example be in relation to the Accounting Act, environmental impact, personnel law etc. Here, it is crucial that you have clarified a common position on legislation, ethics and morals, so that you as a board member do not come to terms with your board responsibilities. Avoid conflict shyness and moral dilemmas as it will undermine the board's working basis, and can turn out costly for everyone, sooner or later. If the owner manager and the board can still not hold a common ground, then the owner manager can convene an extraordinary general assemble and elect a new board, just as the board members can put themselves off the team – that is good management practice.

This is how the good expectations alignment can be approached

It is wise to uncover the classic conflicts from the start, it makes it easier to resolve them when they arise. A professional rule of procedure that are accepted by everyone put most things in order. But it can be a good idea to write down the board's common understanding of good corporate governance, so that it becomes a "personal contract" between the owner manager and the board members.

Personally, I have good experience of aligning common understanding and expectations in five areas:

1) The value chain players and the competitive environment

2) The company's strengths, weaknesses, threats and opportunities

3) Ambitious, yet realistic perspective on strategy and priorities

4) The extent to which capital and liquidity must come from shareholders or the operation

5) Responsibility, ethics and morality

Do not forget the ongoing evaluation of the board work

Even the best match of expectations from the start can be overtaken by time. As with managers and employees, it is good practice to hold "employee development" conversations between owners, the board of directors and the executive board, i.e. at least one annual board evaluation. But it is also a good idea to always have "board time off" on the board agenda. It is the opportunity to regularly discuss the cooperation in the board, and not least whether the owner-manager received a valuable benefit from the board meeting. It is important that the "free time" does not become "free play", so the chairman should ensure that the evaluation gets around for example document quality and preparation opportunities, dynamics and interaction both during and between meetings, competency match today and tomorrow, and the balance between control and development.

A good alignment of expectations from the start and along the way gives the Board of Directors the best conditions for creating maximum value for both customers, employees, the community, the owner-manager and any co-shareholders. The short of the long is that one must at all times have control of many facets of the expectation alignment in order to achieve success together.

Executive Advisor & CEO

Mads Middelboe

Leadmore ^®