We understand that CEOs of private companies may be uncomfortable with the idea of a board of directors, or simply feel that a board is unnecessary. Who wants people looking over their shoulder and questioning decisions? Many founders worry about giving up control of their companies, and fear that others won’t understand the unique nature of the business. Some may also feel that they are simply not organized enough to report to a board, don’t want to divulge the inner workings of their business, or are concerned about making themselves accountable to a governing body. We at MVF feel that the reservations CEOs often have about incorporating a board into their company are normally unfounded. In fact, there are plenty of reasons why it is worth considering a board for your company.
A board of directors is a group elected to represent your company’s shareholders. So if your company has shareholders other than yourself, and especially those who aren’t actively involved in the business, such as outside investors, a board of directors is particularly important. A board acts as the link between those who provide capital, whether by cash investment or labor, and those who receive capital. This means the board is an elected body with fiduciary responsibility to the shareholders. Any publicly-traded company is required to have a board of directors, but private companies are not. Even though a board is not a requirement for private companies, we at MVF strongly recommend it. In fact, we, like many other investment funds, will not provide capital to a company without a board.
On a practical level, a board of directors ensures legal and regulatory compliance — a necessary part of their fiduciary responsibly to shareholders. The board can create structure for important periodic reviews of a company’s competitive position, the appropriateness of the current business model or sales strategy, and the major risks, challenges, and opportunities the business is facing. The mix of skill and experience on a board also provide important counsel for experienced or inexperienced CEO’s. Generally, a board also lends credibility to a fledgling company. This credibility is especially important during the fund-raising period.
Interested in learning more? Register here for the Oct 10 event, where the New England Chapter of the National Associations of Corporate Directors is hosting a panel discussion, “Lessons Learned in the Board Room”. The event will bring together some of the most seasoned directors across Maine and New England. The panel will address a broad range of topics pertinent to anyone running or thinking about starting a nascent company. Come learn and network at what is likely to be the largest gathering of Maine-based directors in recent memory.
For more detailed information about boards for privately help companies, check out MVF’s Business Guides on our Resources Page – several are related to Board Governance. Link Here: maineventurefund.org/resources
