Corporate Governance
by Margaret Heffernan

Watching the corporate governance tormentors wheel around the head of Conrad Black and other public CEOs, it's tempting to feel smug about the freedom of manoeuvre enjoyed by our private companies. As the number of companies withdrawing from the public markets balloons, for once, it seems, the entrepreneur has an advantage: privacy.

I'm not so sure. I have sat, and still sit, on the boards of many private companies and from that vantage point I'd say that their seclusion is often their biggest problem. Built by colleagues who share the same values and enthusiasms, the private company quite often finds itself trapped by its own narrow thinking, shallow horizons and limited experience. Family firms even more so - the genetic predisposition for company members to support and reinforce each other can strangle growth, innovation and dissent. The camaraderie we love about our businesses becomes the group think that stifles it. We can't escape our own thinking and experience. There's never time to read, go to conferences, refresh the brain. So what do we do? Repeat our mistakes, keep our blinkers on, seek progress without perspective. Sure it's nice not to have shareholders scrutinizing our every decision - but where are the voices driving us to fresh thinking, new markets, better discipline different ideas of growth?

They could be on your board. If you have one, which most private companies don't. But I've yet to see a private company that hasn't benefited from a small, smart group of outsiders who can look at the business objectively, want the best for it and dole out hard truths and fresh thinking. Entrepreneurs live and breathe their companies so intensely that they often can't imagine how anyone else could possibly understand it or help. But my experience is that business issues usually fall into pretty recognizable patterns -- and that, having seen these before, fellow entrepreneurs can save companies a lot of the time, grief and expense of learning predictable lessons.

One of the classic, predictable issues companies face is known as Founders' Disease. This usually occurs when the company is about three to five years old. It's gone from brilliant start up to reasonably stable business - and got stuck. The owner, thinking to hold everything together, often just holds things up. But no one inside the business can do much about it. Founders don't like to leave, rarely reward dissent and, having achieved some success, start to believe that they know everything there is to know about their business. This is the moment when the company needs a board: people who can introduce new thinking, new contacts, clear focus.

I've seen boards free stalled companies time and again. One company I know attributes its current success and growth entirely to the creation of its board and the high quality input it got from experienced people who just wanted to see the business flourish. I know other instances where a board has elevated a company's profile and the quality of its thinking - faster and less expensively than any PR company could ever have managed. And yet another when the single, systemic problem gripping a business became crystal clear at the very first board meeting. After years of struggle, the managers could see their problem for the first time. And perhaps the most frequent problem of all - lack of focus - is rarely addressed without outside catalysts.

Who should be on your board? Well not friends and family - and not big names that like being in the brochure but will never turn up for meetings. You need experienced business people each one of whom has a core expertise: management, finance, the markets you work in. Any discipline you leave out will be neglected so think hard about the areas that really make a difference to your business. Think of who you admire in those areas and ask them for help. Most entrepreneurs want to help others - and want to be part of further successes. If your other board members are great people, others will want to join for them alone. Everybody who sits on a board gains from the experience: in the challenges they help you confront, in the debates and strategies they devise with you. Most board members aren't paid beyond expenses though some get attendance fees. What matters most is that they are valued.

Regular, scheduled meetings with your board brings discipline in itself: a quarterly review of where you stand and what chronic problems are still not getting fixed. In several of my companies, I've run board meetings as if we were a public company because it brought a sharpness to how we measured and managed progress. My board members gave me great advice, introduced me to business contacts I'd never have found alone and were hugely responsible for our growth and success. Though they didn't start that way, many of them became friends because we had been through the wars together, hadn't flinched, and came through together, intact. But perhaps most memorably, they've made me understand that I'm not alone. Running a company can be a pretty isolating experience: you can't rant to the workforce, your family gets sick of hearing about it and can't help. But boards can help and, used in a sustained way over time, make you smarter than you can ever be alone.

This article was originally published in Real Business magazine

© Margaret Heffernan, 2004

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