The role of the board and the board chair for a small and middle-sized private business is materially different from the role of a non-profit’s board and from a public company’s board, which must follow a host of securities regulation and compliance laws. However, the majority of literature on board service focuses on these two and neglects the vital role a board — and individual board members — play in guiding a middle-sized business.
The private company board faces a series of unique challenges, which include:
Legal obligations of board members
Rarely do small businesses have legal obligations solely from the corporate code. In fact, this is perhaps never advisable from a legal standpoint. Inevitably, however, LLC operating agreements, shareholder agreements, or other documents change the fiduciary and commercial obligations amongst the investors and the company.
Parsing through the myriad of duties is not always simple; sometimes, people only do so when facing extremely adverse conditions. Additionally, investors, owners and operators may have competing financial agendas. Interest alignment is always necessary, and usually, interests are initially aligned. However, over time, financial agendas diverge and problems set in. Having a board in place can help a business navigate this difficult territory.
In reality, for the health of small/ middle size business, everyone needs to be in the same mindset: focused on what’s best for the company. But the depth of the relationship, the care of advice, and the perspective behind the advice is often shaped by actual legal duty. It’s essential to understand the legal responsibility carried by all relevant parties: is it merely transactional? Or is it investment, fiduciary, or business-related? A board can help develop a deeper understanding of the legal roles everyone plays.
Cost
In order to get competent people to provide competent advice, you have to engage them. People tend to put their philanthropic efforts in boards of non-profits, not of small or medium businesses. In the absence of a higher philanthropic mission, engagement typically equals cash; people enjoy this work, but ultimately, they need to get paid.
However, even larger middle-sized businesses often lack the amount of cash typically necessary to pay competent advisers, at least not enough to do everything that large companies do. For public company boards, a five or six figure payment plus options is merely a rounding error; for most companies, however, that amount of money is a huge hurdle. These companies are left to cobble together legal, fiduciary, advisory, and monitoring services. Advisory boards, outside accountants, lawyers, mentors, investors/owners, business coaches and others fill the roles — sometimes poorly, sometimes well, and sometimes a little too well.
There is no one-size-fits-all solution for a board. But having a board is worth it for the roles it serves. Company owners and executives should at least think through these issues. Below, you’ll find a board chair description. While it may not be an exact fit for your company, these guidelines will at least give you something to think about.
Sample Job Description for a Board Chair for Small and Mid-Sized Private Businesses with Multiple Owners
The Chair of the Board, in conjunction with the other non-management board members,acts as the liaison between the Ownership and the CEO. In doing so, the Chair must understand and relay the business strategy and the financial needs of the Company to the owners of the Company. The Chair must also serve as a collaborative and united front for Ownership whenever advising the Chief Executive Officer (CEO). The independence from direct involvement in management allows for a purely consultative role for the Chair.
Specifically, the roles and responsibilities of the Chair are as follows:
- Board Leadership. To lead and manage overall Management Committee [Or Board of Directors] and Advisory Board leadership with the input of CEO in order to create the productive environment necessary for business strategy.
- Legality. Depending on the legal structure of the company and corresponding organizational documents, the Board Chair and the Company must ensure that all legal duties are being fulfilled and managed.
- Ownership Advisory Council. Though communication should stem from management, the Chair provides meetings for and ensures communication to all relevant parties.
- General Ownership Advisory. Given the size of the company and the limitations of its board structure, the Board Chair may, in conjunction with the CEO, engage consultants and meet with individuals to assist in pursuing high-level objectives.
- Ownership Representative. To act as an advocate and a leader for Ownership and to ensure its objectives and interest align with those of the CEO and management whenever input in business decisions is necessary. The Board Chair also facilitates and ensures proper communication between the Owners and CEO and, in consultation with CEO, sets the agenda for the Ownership Advisory Council to ensure importance and relevancy.
- Strategy Development. In consultation with the CEO, the Chair develops an obtainable strategy that satisfies the objectives of the Ownership. The Chair must be aware and knowledgeable of the risk associated with the strategy; additionally, the Chair must communicate that risk to Ownership. The Chair must monitor strategy with CEO on a continual basis.
- Managing the CEO. With approval from the Board, the Chair sets metrics and accordingly ties compensation for the CEO. The Chair will meet on a [semi- annual] basis to evaluate and review the CEO’s compensation and performance towards objectives.
- Monitoring.
- Financial:
- Review with the CEO on an annual basis the financial statements of the company and the accounting process for company. Pick CPA firm.
- Review with the CEO on a quarterly basis financial results against target.
- Budget:
- Meet with the CEO to set a budget for annual cost including SG&A, fixed store cost, and other overhead costs.
- Be provided a [12 month] rolling forecast of financial information on a [quarterly] basis
- Financial: