21 February | Agilium Worldwide
February 2023: SME boards need to become ‘more professional’: An opinion piece by Jon Steen of AWN – Agilium Worldwide’s member firm in Norway
At a recent webinar hosted by AWN (www.awn.no/en/), Agilium Worldwide’s member firm in Norway, speakers Jon A. Steen from AWN and Bjarne Aamodt from iStyrelsen AS discussed the tasks and challenges of the board of an SME. How are these boards reacting to current changes? What difference do ‘value-creating boards’ make, and what characterizes them?
Small and medium-sized enterprises are currently experiencing major changes in technology, customer needs, new business models, sustainability requirements and increased cyber security threats. As the company’s top level of management the board of directors face major challenges in making sure the company develops in the right direction. This is where the benefits of a value-creating board come into play. Many companies succeed, others fail to make the right decisions. Frequently characteristic of a ‘non-professional board’ is that the same person acts as both chairman and CEO. This can pose a risk to the value creation of the company.
Strategy and monitoring
A corporate board’s main task is to develop clear strategies and contribute to the development of the business. It has to ensure that the company has a competent and motivated general manager, and act as a sparring partner when required. The board also has to carry out monitoring, control and supervision, including internal control and risk management. Why are non-professional boards in SMEs so widespread? One major reason is that the owners don’t see the need for a professional board. They think they can perform most tasks themselves. A professional board is perceived as an unnecessary and unjustifiable cost.
Ensuring value creation
If a professional board is to make a full and significant impact, the owners, the CEO and the board itself need to understand and accept their respective roles. And also the way they all work together has to be clarified and systemized. The owners sometimes perceive the board as having only a control function and haven’t understood that the board can be a value-creating instrument. It’s important to see a professional board as an investment. Through its strategy work the board can make a significant contribution to the profitable development of the business. Following up on goals leads to better results over time. And a professional board can ensure excellent organization, ample expertise and the right corporate culture.
The ‘board test’
For the board to work effectively, it has to have the necessary skills, creativity and ability to be a strategic driver of the business. Consequently, the board needs to nurture its self-development and its effectiveness in order to perform its tasks efficiently over time. One of the chairperson’s main duties is to ensure an annual board evaluation takes place, ideally around the turn of the year. A board evaluation can be combined with a workshop on topics of current interest. During the pandemic, corporate boards had to perform much of their work through electronic channels. This resulted in significant time and cost savings, but also had some negative effects. Now, board work has adapted and involves both physical meetings and digitalization, in combination, in order to become more effective again.
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