by Patrick Esposito, President of ACME General Corp., Founder of Initiative Labs LLC, and author of “The Structure of Success”
As a leader of a start-up or small business, you and your partners (if you have them) are responsible for establishing the direction, monitoring the performance, and revisiting the direction of your business on a consistent basis.
But you do not need to do it alone. As I explain in my new book “The Structure of Success”, there is much to be gained by creating a governance team composed of experts in areas such as management, sales, marketing, accounting, and compliance. These are individuals who you might not be able to hire as full-time team members but who can help you elevate the performance of your business.
A Governance Team as Your Security Council
The governance team, which I like to call your security council (in a nod to the United Nations), focuses on the security, stability, and future of your business.
Do not worry, if the term “governance” conjures images for you of large publicly traded companies with boardrooms filled with directors focused on Sarbanes-Oxley compliance, audit report analysis, and the like. Governance, for your company does not need to involve a board of directors — or even a board of any kind.
Governance, in its simplest form, provides a structure and processes to help you manage and guide your business. The business governance framework — integrated with your management team — will set the direction of your company, monitor the execution of these strategies, and revisit the direction.
Governance Options
What are the options for business governance frameworks? You have a range of choices, including:
- Board of directors — Legally defined formal group of elected individuals with the power to set business policies for management and oversight
- Advisory board — Informal or formal body of experts and advisors that is generally not legally defined, constituted, or empowered but rather is selected, constituted, and operated by the executives and management team to provide strategic advice
- Professional advisor team — Group of professionals with specific expertise, such as legal, accounting, etc., who serve as strategic advisors to management and/or a board, but without legal authority
- Friends and family council — Group of friends and family members responsible for providing strategic advice without any specific legal authority
- Hero ball — The power of the one or two self-appointed “decider” or “deciders.”
These governance structural options are not mutually exclusive. You can use all or even some of these options together. What is important is to determine the type of structure you wish to use. A factor may be how much input you want to receive from and what authority you wish to cede to individuals who are not you or your co-owners. The size of your security council should be large enough to balance providing diversity in viewpoints and small enough to support collaborative dialogues that generate action.
No matter the reason, it is important to decide on the model or models that are best for you and provide you with the most comfort. Then, you will need to do some additional work to frame the model, including considering whether legal changes — for instance, through updates to bylaws for a corporation or to the operating agreement for a limited liability company — are needed. Even if it is not legally required, it is important to create a short, concise charter that will provide the foundation for the operations of the governance model you choose.
Experiences with a Governance Team
In businesses that I have founded and led that proved to be successful — either through long-term sustained operations or an eventual acquisition by a market leader — we used a formalized governance structure with a board of directors (including at least one independent member) that was empowered to set the policies for management and oversight.
In a survey of 100 expert business leaders conducted as part of the research for “The Structure of Success”, I found that nearly 90 percent of them used some type of governance or advisory structure, and the majority — more than 60 percent — relied on a formal board of directors.
So, while a governance team may seem like something that only exists for larger businesses, the reality is your business will be better positioned to succeed if you establish your own security council!
Patrick Esposito, author of “The Structure of Success”, is president of ACME General Corp. and also serves as counsel with Spilman Thomas & Battle law firm. He has helped found, lead, and advise businesses in technology, consulting, and other sectors. Esposito recently launched Initiative Labs LLC to help leaders apply the approaches and tools in this book.
