Ask any entrepreneur why he or she started a business and at least one answer is inevitable: I wanted to run my own show. So why would a small business owner want to answer to a board of directors?
It turns out there are a lot of good reasons. Just ask David Ganong, chairman of Ganong Bros. Ltd., a New Brunswick family-owned candy maker.
"My grandfather had a saying back when he ran this company: 'When management and ownership is the same, you need a board of directors to protect you against yourself'," says Mr. Ganong, whose company has had a board for more than 50 years.
"My experience says that most companies can benefit from a board as a way to generate extremely good, broad advice at very low cost."
Founded in 1873, Ganong Bros., is Canada's oldest candy company. Based in St. Stephen, New Brunswick, the firm employs about 400 people and exports a substantial amount of its production to the United States.
The independence of the company's board has been a decisive element in the firm's long-term success, says Mr. Ganong, the company's controlling shareholder.
"I bring most of my big decisions to them to get their feedback -- which by no means implies automatic approval," he says. "In fact, we have had situations in which the business plan I submitted was rejected and had to be reworked."
Mr. Ganong's board has an impressive lineup of independent directors with diverse, high-level experience in such areas as manufacturing, accounting and human resources. Corporate lawyer Purdy Crawford is the former chairman and remains on the board.
Mr. Ganong, who stepped down from the chief executive officer position in 2008, believes a board is also reassuring to bankers.
Even the smallest company can start with a mentor and then work up to a small advisory board that can grow with the company, he says.
Jean-René Halde, BDC's president and CEO, agrees.
"A well-run board can bring significant advantages to a small business. Entrepreneurs often overlook those benefits," says Mr. Halde, who has served on the boards of many businesses and organizations during a career of more than 35 years.
"Their importance, particularly in bringing a fresh perspective, is being increasingly recognized."
Advantages of a board of directors or an advisory board
Boards of directors can bring small and medium-sized enterprises (SMEs) many of the same advantages they bring to larger companies. For example, venture capital funds often want to closely monitor progress and provide advice to companies they've invested in; a board offers a good way to do so.
Michel Nadeau, executive director of the Institute for Governance of Private and Public Organizations in Montreal, cautions entrepreneurs that an advisory board, as opposed to a formal fiduciary board, is often preferable for SMEs.
"Advisory board members, who often include old business contacts the entrepreneur knows, retired business executives and others with legal, financial or other specialized knowledge who are willing to pitch in, can often be counted on for advice in exchange for a nominal fee, or even just the price of a dinner," says Mr. Nadeau.
Beverly Topping, president of the Institute of Corporate Directors, adds that an advisory board can increase the pool of candidates for directors. "The primary responsibility of directors on public boards is to the company, with the potential for liabilities, which can cause worry among some candidates," Ms. Topping says. "However, under normal circumstances, there are no legal implications involved in joining an advisory board."
SME boards: Growing interest despite tough times
Thanks in part to research indicating largely positive benefits for SMEs, entrepreneur interest in boards of directors is growing, according to Ms. Topping.
"There have been a number of studies that show that better corporate governance leads to improved business practices and lowers risks to borrowers and investors," she says. "This means a company's cost of capital is reduced, which in turn means better bottom-line performance."
David Ganong continues to be more than satisfied with the role his company's board has played during the current tough economic times.
Although the recession has had little effect on demand for the firm's products, the run-up in the Canadian dollar in recent years made it tougher to compete in export markets. "We had to cut fixed costs significantly as a result," Mr. Ganong says. "The board played a big role in those decisions."
On the other hand, the stronger loonie caused many of Ganong Bros.' competitors to consolidate operations south of the border and to close their Canadian facilities. That opened up opportunities for Mr. Ganong Bros. to boost sales.
Here again, the board offered important input.
"The combined judgment and wisdom of the board is very valuable," says Mr. Ganong. "You've got a second line of very qualified thinkers, in addition to management, that's trying to ensure the company is making the right strategic decisions."
Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.