Driving performance through independence
Successful firms of all sizes use their Board to deliver a competitive advantage, strategic thinking, risk management, and the results expected by the owners and shareholders.
A key rationale to place directors with your business to help create or enhance your board is that an independent director’s accountability (by law) for the decisions they facilitate is an important differentiator, and one that really sees them with ‘skin in your game’.
An independent director brings new perspective, experiences, skills, and insights to your business that will enhance the way you operate. A homogenous board of shareholder directors does not necessarily drive innovation or challenge the status quo. Independence of thought and action generates a dynamic in your boardroom that will drive your business’s success and importantly, holds it and its people accountable.
Accountability is what drives business performance.
Many interests are represented within a board of directors: the CEO, founder(s) or other senior executives, venture capitalists or other big investors, and shareholders with large holdings. Ideally, each director should look out for the company above all other interests, but this may not always happen.
An independent director can bring balance and new perspectives, fresh eyes to a board, and make it a high-performing board. Below are five reasons why every board needs an independent director.
1. Drive performance through independence
Executives also need challenge and stretch. They need people who can critically analyse their ideas, point out risks, and help them see and understand more clearly. That is why small private and family companies and not-for-profits are appointing independent directors in ever greater numbers. They realise that having independent critical minds in the boardrooms sharpens their own thinking and gives it more focus. The CEO’s job can be lonely and having an independent chairman to share business challenges can very helpful.
2. Independents are impartial
An independent director is not as closely tied to the company as executive and investor board members; this can allow the independent director to be more impartial and objective.
An independent board member’s job is to look out for the well-being of the company and all the shareholders’ interests.
3. Independents want to be there
If you’re a start-up or have only executive directors and shareholders or investors on your board of directors, you run the risk of having board members whose attention is split between many boards of companies they’ve invested in.
Many variables can impact their level of engagement, e.g., how much money they or their firm has invested, how important the company is to their portfolio.
An independent board member can bring focus and depth of perspective about your industry, company.
4. Independents bring expertise to bolster where you have room to grow
With an independent, you get the chance to have an expert in a specific area where your company wants to grow (e.g., going public or scaling/growth), or an area that has become more urgent due to market changes, new opportunity or an adverse situation. This can be especially important when you’ve got a small board and are early in a company’s life cycle. By bringing in a specific expertise early through your independent, you can take advantage of growth opportunities and potentially avoid costly mistakes.
“Creating and running a start-up can be stressful and time-consuming.” Since the independent director should have loads of operational experience and will often have specific industry knowledge, chances are he/she has experienced almost everything the CEO will go through. Who better to listen, advise, and counsel?
5. Independents are the key to conflict resolution
An independent board member is able to play a pivotal role in neutralising any conflicts that arise among the board. An independent director can often be a bridge builder in difficult conversations.”
Sometimes there are just some deep, fundamental disagreements between the management team and the company’s investors/founders. The independents are in a unique position to cut through to the core issues and find agreement much faster.
6. Independents can mentor and share their network
While all board members can help to mentor the CEO and executive team of the company, an independent can be specifically recruited for both experience and mentoring skills or perspective needed by executive team.
Through casual or more formal conversations, an independent director can be the key to a more effective management team.