By , Axial | August 12, 2015
In many mid-market companies, the CEO serves as the judge, jury, and executioner in almost all decisions. Few mid-market companies start with the boost of external capital and energetic VC guidance that young startups do today. In most cases, the CEO either inherited the company from generations prior or built it slowly over time, without a set roadmap for growth.
Unlike their publicly traded counterparts, private companies have no legal obligation to create a board of directors or advisory board. But that doesn’t mean they don’t need one. Some CEOs might fear creating a board is equivalent to relinquishing control. But smart leaders see their board as more than just a system of checks and balances. Successful companies rely on this engaged group of advisors to gain perspective, gut check decisions, and help chart a course for aggressive growth.
A strong and experienced board of directors is an invaluable asset for every private company trying to achieve growth in today’s competitive and complex market. Here are a few ways a board can help mid-market companies thrive.
Seeing the forest through the trees
Many CEOs of mid-sized companies spend a majority of their time heads down running their companies. Maintaining day-to-day operations often trumps longer term strategy. Sometimes, it takes an outside observer to notice when something needs to be adjusted or to refocus the organization on the bigger picture. Boards help prevent CEO tunnel vision: They ensure busy executives take the time to look up, adjust, and make sure the company’s daily initiatives are tracking toward its broader goals.
Expanding expertise
Companies face a host of challenges on the path to growth. A CEO is just one person; even the most seasoned leader won’t have experience tackling all the potential problems that crop up along the way. A typical board might include outside investors, former industry executives, and academic experts. By assembling a core group of advisors with diverse expertise (particularly in areas in which the CEO and/or management may be weaker), companies increase their chances for long-term success.
Mitigating risk
Every business venture involves risk. Creating a board of directors won’t remove this risk, but it can reduce it. A board can help a company proactively evaluate and secure against potential sources of conflict or upheaval: anything from employee lawsuits to PR crises to market downturn to cyber threats. For example, a company’s board might encourage senior leadership to create a continuity plan should the CEO or another key member of senior leadership jump ship. For family-owned businesses, the board might encourage a set succession plan to prevent infighting.
Increasing credibility
Looking to partner with another established firm? Trying to nab a superstar hire? Need to raise capital? Building out a board of directors increases your company’s credibility in the eyes of investors, partners, customers, employees, vendors, and others. An experienced board of directors serves as just one more proof point of a successful, healthy organization. From the perspective of both internal and external stakeholders, the board serves as a safeguard to protect their interests.
Preparing for the next step
As mid-market CEOs consider the resources needed to bring their company to the next level, boards can be an invaluable asset. Board members — most of whom will have been through one or many transaction processes as investors or business owners — can help navigate decisions about bringing on strategic partners or pursuing outside capital. Boards can help CEOs see their companies through an investor’s eyes, and prepare for the inevitable questions that come as they approach the market.
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For additional informatio concact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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