The Key Question Often Missed β βWhenβ to Activate Your Board?
By Darren Rawson
Darren Rawson is the chair of five private companies including AltaML and Chandos Construction. He’s a former CEO of three different private companies and has done business internationally for over 25 years in numerous industry sectors.
I often hear from shareholders of private companies who are considering establishing a board. Typically, their first question is “who should I add as directors?”
Although this is a great question, it is not the best starting point. The best first question to ask is “why do you want a board?” As Simon Sinek famously advises, always start with the why.
Reasons to activate (create, elevate or redesign) a board—whether advisory or fiduciary—are numerous and have been explored in our previous article on Top 10 Reasons to Have a Board.
There are also contextual issues driving the need for a board. These could include:
- Increasing business complexity
- Planning for an eventual exit
- Enhancing strategic direction
- Navigating shareholder dynamics (including family-owned businesses and/or multiple shareholders)
- Managing through CEO succession
Many of these reasons have probably been discussed with every private company. However, despite understanding their significance, boards are often activated later than ideal. This is primarily because activating a board seems costly and/or premature at certain business stages.
Moving from “Why” to “When”
Once you have clarity on why, the next most important question is “when is the right time for a board?”
Unfortunately this question is often overlooked resulting in most boards being activated at a time of crisis—arguably the worst possible time. More than once I have heard a shareholder or director say “it is a shame we didn’t do this two or three years ago”.
The key reason to carefully consider the “when” is because boards require time to become fully effective and contribute at a strategic level. Directors need to learn the business and the business model. They need to personalize the industry, the competitive environment, and the winning strategy. Additionally, the board and executive team need to build trust and establish a culture of constructive conflict and healthy skepticism. All of these dynamics take time.
Our recommendation is to plan the activation of your board approximately 12 to 18 months ahead of the anticipated need. While this may seem like a long runway, it is the necessary amount of time for onboarding, alignment and meaningful contributions. This preparation period also provides an opportunity to accelerate (or decelerate) strategic activities in response to emerging opportunities or unexpected risks.
Revisiting “When” with Existing Boards
The concept of “when” also applies to existing boards. Most boards operate with well-established structures and processes that have been around for an extended period of time, usually predating current directors and executives. The board may review and tweak their governance documents and structure, but rarely does it result in significant change.
Yet the world is not static. The competitive landscape is changing daily. Geopolitics seem to be evolving even faster. In response, companies continue to stress test their strategies. Shouldn’t the design and composition of your board evolve in parallel?
So “when” should you do this? Taking the time for an extensive governance review or redesign is not necessarily something that should be done every year. However it is a valuable exercise that should be planned based on the evolving needs of your organization.
Our philosophy is that every board can be better. Asking the question “when” to activate or redesign your board is a valuable way to assess the optimal timing and conditions for ensuring your board is ready for the moments that matter.
Once the “why” and “when” have been thoroughly considered, revisiting the original question of “who” becomes much more strategic. Clear answers to why and when will guide the organization in selecting directors who best align with future needs of the organization.
