In recent years, best practice has stated that having at least some independence on your board will bring a number of benefits to your business. Some of these are listed below:
- Diversity of thinking
- Objectivity of thought
- A natural challenge to groupthink
- A formality and rigidity to board meetings
- Bring in outside skills to the board, not ordinarily available from ie family members, founders etc
- Increase credibility of board as your business grows
- Introduce new networks to your company
In terms of recommended numbers of board members, this will vary according to the size of your business, turnover, and whether private or publicly traded. The ASX for instance, in Australia, recommends that all directors of ASX traded companies are independent
For startups, it is good practice to start early and ensure that founders can be challenged, plus all of the benefits above. Consider appointing at least one independent board member appointed present for each meeting. Many writers are staunch advocates of the credibility that strong independent directors can bring your business. As a startup, this cannot be underestimated, ie the effect of credibility in your business.
Jazoodle is a big supporter of having independence on our board. From day 1, I wanted to have 1 independent director appointed, and we subsequently appointed Trevor Hartshorne, a local accountant and successful entrepreneur himself. Independence adds rigour to our meetings, and challenge to decisions – I believe this is critical to future business success.
As we grow, our intention is to increase our board, with possibly up to 3 independent directors, serving us well through our growth plans. As noted above, the ASX recommends full independence on public company boards.
However, there are some potential issues with this according to MIT research Downsides can include:
- Managerial oversight can be affected from having directors too far removed from the core activities of the business
- Difficulty in replacing a CEO with natural successors if there is no close link between board and executive team
- Being removed from the industry or business may mean that strategic direction may be hindered through lack of understanding of the environment in which the business sits.
Overall, independence is to be welcomed, and as a business moves from startup, through early growth, through scale, and then super growth / IPO / Exit the value from having diverse and challenging thought plus the credibility and networks that can be introduced as a result, could be invaluable to businesses
Andrew Paton-Smith is the founder and CEO of Jazoodle Pty Ltd