5 Signs that Suggest Now Might Be the Right Time to Establish a Governance Board...

If you’re a Founder in the process of scaling your business up, then a sensible question to ask is... when is the right time to establish a Governance Board?

Last week, I went over the details of Advisory Board structures, their pros and cons, and what it takes to set one up. This week, we explore Governance Boards.

For the avoidance of doubt... I do not subscribe to an Advisory Board vs Governance Board mentality.

Neither are a "better" option, because each have entirely different purposes. The question is always, "what are you trying to achieve and what is the right support structure to help you get there?". You could need an Advisory Board, or a Governance Board... or in fact both!

Let's have a deeper look at some of the features of a Governance Board and then look at 5 signs that might suggest now is the right time for you to establish one.

What does a Governance Board do?

The boring description is that Governance Board is typically and broadly responsible for agreeing (or setting depending on whose view you listen to!) the strategic direction of the business, monitoring its performance, managing risks and ensuring that it complies with legal, regulatory and ethical standards.

Boring. What's a Better Analogy?

I like to think of a Governance Board metaphorically as the Air Traffic Control tower when you as the Founder, are the Captain of the aircraft.

Board members are there to:

• scan the airspace for risks

• direct traffic

• ensure they understand the weather you're flying in, and

• provide guidance on how you should approach the runway to ensure you can land yourself and your passengers (team members and customers) safely.

Ultimately you're still flying the aircraft. But when you're flying smaller aircraft, there's less risk and so there's no issue with you taking off and landing in smaller airfields where there's no Air Traffic Control function (ie. no Governance Board).. you just use your best judgement.

But. When you want to fly bigger aircraft in a more crowded airspace that has more rules, regulations, risks and bigger consequences if you get something wrong, it's incredibly helpful and important to have Air Traffic Control helping you take off and land.

So What Are the 5 Signs that Now Might Be the Right Time to Establish a Governance Board?

Here's a simple checklist. If you:

1. Are considering taking on major external financing (either debt, or equity)

2. Have decided executing multiple acquisitions will be a core part of your strategy

3. Are intending to go public within the next 2-5 years

4. Have operations that are becoming very complex

5. Are planning a major succession and change of control

If you answered yes to any of these, then it might be time to investigate establishing a Governance Board.

Let's Unpack these Reasons Further

There is a reason why each of these are a sign that you should think about establishing a Governance Board. So let's unpack why a Governance Board is so important in these scenarios

1 - Material External Financing

When you take on major external financing, your board can oversee financial reporting and ensure that the company is transparent about its financial performance. They can help manage relationships with investors and creditors and ensure the business meets its obligations. They can also help with financial due diligence to ensure the choice of external financing is well considered before making a decision, as well as helping sure up legal and regulatory risks and improve risk management.

2 - Multiple Acquisitions as Part of your Strategy

Acquisitions are high risk/high reward strategies when executed well, but if you're planning on doing multiple acquisitions then you need good governance. A Governance Board with Directors who have M&A experience can help to oversee due diligence (at a high level), identify and manage financial, legal and reputational risks, provide financial oversight and legal and regulatory compliance. There's a lot to get right, and there's a lot at stake so the right Directors can help to share the load.

3 - An Intention to go Public

There's a lot of legal and regulatory compliance involved in going public. Financial reporting requirements are significant and risk management processes are required. A quality board will enhance confidence in and the credibility of your business with investors and can help you manage investor relations. There is also the benefit of improved decision making relating to IPO timing, pricing and structure.

4 - Complexity of Operations

If your business operations are becoming more complex, you may need a Governance Board to oversee the development of policies, procedures, and controls to manage risks. A Board will ensure that you are compliant with any legal and regulatory requirements, and save you a whole lot of trouble down the line.

5 - Major Changes of Control

If you are planning to exit the business or transfer ownership to others, you may need or want a Governance Board to oversee the transition and ensure that the company's long-term interests are protected as you step back.

All of these items (except the third, about going public) can be done without a Governance Board if you have wise and experienced counsel around you. However, they are representative of situations where the level of risk and consequence is taking a major step up, and in those circumstances a good Board can be worth it's weight in gold.

Pros and Cons of a Governance Board Structure

Last week we looked at the pros and cons of Advisory Board structures. So what then, are the pros and cons of a Governance Board structure?

Who Shouldn't Consider a Governance Board?

Governance Boards aren't the right support model for every Founder and there's a few things you want to consider first, including:

• Scale. If you're a small business (in my personal view, typically less than 15-20m in revenue) the cost, complexity and time requirements to establish and maintain a Governance Board may not be warranted, unless you answered yes to one of the 5 signs and are ready for the commitment and investment.

• Ownership and Control. If you want to retain full control of all decision making and are not ready to share that with anyone else, a Governance Board may be a hindrance rather than an enabler.

If these sound like you, an Advisory Board might be a more suitable model for your current situation. But at some point hopefully, if you continue to scale, a Governance Board will become relevant.

What are the Typical Costs of a Governance Board?

Sadly, it's a lawyers answer... it depends of course! On the size, structure, and needs of the organization. But here are some costs you will need to consider:

• the remuneration of your Governance Board Chair

• the remuneration for independent Directors with skillsets that match the needs of the organisation

• the cost of recruiting the Chair and the Directors

• the cost of training each Board Member to get them up to speed

• The cost of administrative support, like a board management software platform

As a rough estimate, you might expect to pay anywhere between 100k to 500k per annum depending on the size and complexity of your organisation, the number of board meetings and the skills and experience required of Board Members.

An Advisory Board by comparison, typically costs 50k-70k per annum.

How Much Time Do I Need to Put Aside?

Depending on the business, Governance Boards might meet only quarterly but many meet monthly.

Meetings could take from a few hours, to a whole day depending on the organisation.

Before meetings, the CEO will need to prepare materials (which may be extensive and detailed) and Board Members will need to review all of that documentation. Board Members are liable for decisions that get made in that Board Meeting and therefore they take these materials very seriously (for good reason!).

There may be additional requirements outside the Board Meetings for Board Members to engage with stakeholders, shareholders, financiers or investors on the CEOs behalf.

Not Sure Which Support Model is Best for You?

We'd be only too happy to explore your needs with you and give you our view as to which of the following support structures might be most suitable for you:

• Founder Mentoring,

• an Advisory Board (which could be project-based or a "whole of business" Advisory Board),

• a Governance Board, or

• a referral to an expert or consultant to deliver some work to help you solve a problem.

We're not wedded to the outcome, we just want to see you get the support you need.

If you'd like to talk to a member of our team, all our details for LinkedIn, WhatsApp and email are here.

We'd be honoured to spend half an hour with you for free to explore your needs and point you in the right direction.

PS. If you'd like more information about ScaleHQ Advisory Boards, click here, OR if you'd like to get a free 9-page Growth Score report to identify your growth needs and constraints, click here.