Serving On A Board of Directors: Are You Ready?

Every healthy living being has an instinctual drive to survive.  Companies share that instinct, but unlike individuals that have friends, companies face competitors who do not necessarily wish them well, provide emotional support or help them with objective advise in moments of need. 

While some affluent individuals and athletes, for example, have coaches, companies do not. They often do, however, have a Board of Directors that provides the kind of agnostic support and independent insight that can steer them, like your friends, to success.

The best performing companies are those that are led by their founders.  A recent study showed that founder-led companies, over a 24-year period, grew shareholder value three times as much as did other companies.

What is it about founder-led companies that makes them different? 

Certainly, one characteristic they all have, and one that distinguishes them from companies led by professional managers, is that founder-led companies are led by individuals who themselves own very large portions of the companies they lead.  Those founders also do not view their role in running their companies as their “current job,” as professional managers might; they have a much longer-term view.  As long-term, highly-vested owners, founders just lead their companies differently.  

Owners, of course, want their companies to operate profitably since any losses are, to a large extent, losses of their own money.  They first prioritize achieving, and then maintaining, profitability.  They also seek growth that is profitable.  Anyone can grow a company, but non-profitable growth is destructive, and owners won’t allow that to persist. 

The survival instinct further drives those founders, once their companies are established, to seek to out-perform their competition, since only out-performance guarantees survival.  Optimal out-performance consists of generating both higher growth AND larger profit margins than competitors obtain, and founder-led companies achieve both more often than do other companies.  Doing that over a long period will result in value creation that is multiples of the value created by other companies.

In my next article, I’ll offer some reflections on how an individual director can help to make that happen.