The Role of The Board of Directors
In Closely Held Construction Companies
Closely held construction enterprises rarely have a board of directors. Most construction company founders consider a board pretentious or a pain in the neck or an unnecessary expense or an unfortunate appendage attached to public companies that they fortunately do not have to mess with. At the very least, they consider a board of directors “useless”.
Nothing could be further from the truth. The roles of a business owner and the management of a business are separate and distinct and equally significant to the success of the enterprise. In the closely held and family business, however, one person usually wears both hats. As owners, they decide “what” they want. As managers, they decide “how” they’re going to get it. This dual function seems natural to entrepreneurs. What they’re missing, however, is the accountability factor. Organizations function with maximum efficiency when management is held accountable by the owners of the business. When the distinct functions of owner and manager are not kept separate, no one is held accountable, and neither function is carried out effectively.
Entrepreneurs get totally involved in the day-to-day running of their business, in firefighting, in doing the things they like or they feel comfortable doing, and with no one to correct or guide them, they eventually lose sight of the big picture, their driving vision. The unfortunate result is that the business doesn’t evolve and the entrepreneur eventually finds running the company increasingly unpleasant or beyond their capabilities.
It is the responsibility of the business owner to establish goals and objectives for the company and to discipline the performance of the management of the enterprise toward the attainment of those goals.
The distinct functions of a business owner are:
- Establishing and updating the short-and long-range goals and objectives of the company.
- Reviewing and recommending policies for the enterprise.
- Objectively measuring the performance of management in accomplishing the clearly defined milestones and objectives.
Management’s responsibility is to organize the resources of the company to achieve attainable goals and objectives as set out by the owners or stockholders of the company and explaining in factual detail why they did or did not achieve the goals.
In closely held construction enterprises, where the owner is usually the CEO, the best way to utilize the power of accountability is to establish an active, independent board of directors. The board of directors collectively takes the owner’s role of establishing goals and holding management responsible for execution where the owner is also functioning as the manager.
An active, independent board of directors may be the single most important choice the owners of a closely held or family business can make in ensuring their future prosperity, managing their business risks, and gaining control of their two-hat responsibilities. It also introduces the independence and objectivity so vital to the leadership of the closely held business.
Independent: The most effective board for a closely held or family business would have several truly independent outsiders. The “independent” status empowers the board in its role of holding management “accountable.” At least two or more outside directors can be extremely helpful to an owner even if they think they are not ready for that much “outside help.”
Advisory: An advisory board with limited authority is a viable alternative for founders who are not ready to surrender “control”. They can begin to get comfortable working with a board and eventually let the board usurp the “owner’s” prerogatives. Companies get tremendous benefit from thinking outside the box. This may mean selecting board members of business executives from very different industries or someone who sees the world of business from a very different perspective. In any case, an advisory board is a good beginning for the independent founder who might have considered a board a “useless appendage”.
Peers: An informal board of peers or a peer group relieves the feeling of “its lonely at the top” that most owners and leaders of small enterprises have. Entrepreneurs need a forum where they can openly express their ideas, concerns and plans and inviting peers to sit on your board can create a comfortable working environment.
The Magic Mix
A blend of company executives, interested stakeholders, truly independent directors, and peers on your board can be a powerful management tool. Familiarity and respect leads to trust. When a construction company founder begins to trust his board and invites them to hold him accountable as the manager, his board will become his most powerful management tool.
Read More: The Need for Boards of Directors