Why you should have external board members?

Why should I elect external board members on our board when we have managed all these years? This is a common question many family- and/or privately-operated companies ask themselves.

According to regulations in most countries, all companies should have a board of directors. However, in several companies this only exists on paper. Instead it is common that the CEO is a member together with his/her family and that a real board work isn’t performed. This often due to a fear of bringing in external board members and by doing so also giving them insight into the company. However, most of these companies would in fact, perform better if they elected external board members and carried out proper board works. If a company for example, have plans for expansion they could benefit a lot from the knowledge and experience of external board members.

Is there a risk that there will be too much bureaucracy when you elect external board members?

Bureaucracy should not always have negative connotations. In this case “bureaucracy” might instead be an advantage for the company. It is always good to have a clear structure, write a plan for the year, decide when you should have meetings and emphasize the importance of each meeting and distribute the agenda, which should be fairly standardized, in good time before the meeting. Thus, this” bureaucracy” is a way of work in a more structured way and it will also result in higher demands on each board member and on the management team to be well prepared for the meeting.

But it will cost a lot of money?

That is correct, the external board members will be compensated, but this cost should be seen as an investment for the future.

What should you think of when you compose a Board of Directors?

When you start the process of electing an external member on the board, you should write a demand specification. It is very important that you analyze what competence that are required. A few questions that you could ask yourself in this process could be; What role do you want the member to have in the company? Is it in market and sales where we want to strengthen or is it in production from a similar industry? It is very important that the new member have the knowledge, experience and educational background that suits the role.

It is also important that each member can provide specific knowledge. To have a mixed background among the members is a great advantage for the company. Sometimes you have to think outside the box in strategic discussions and then it is important to have professional members to discuss with.

But of course, the personal characteristics are of most importance if you should be able to create a successful collaboration in a privately-owned company. The personal chemistry must work, and the board member must be committed to the work as a board member.

Finally; with the right people you have a great opportunity to solve the things you have been discussing for years but haven’t been able to solve.

Håkan Cöster