Board of Directors: A “one size fit all” solution?

I recently came across an article that very enthusiastically promoted the implementation of a Board of Directors whenever a company wanted to become as big as one of the leading web search engines corporations. Along with some of the benefits that a Board may bring to a company, the article also stated that a Board should be formed if a company had 50 or more employees, was generating $10 million revenue and was receiving or seeking outside capital.

What this article did not mention was if those three elements had to converge together, or if the single existence of one of them would be sufficient for a company to require the intervention of a Board of Directors. It was not explained either how these three criteria were defined and what their scope was. The needs of a fifty employees working as staff for call center services company definitely does not equal to the needs of fifty employees distributed into R&D, assembling, logistics, marketing and sales, post sales services and management of a high-tech company; the requirements and management strategy for each company may vary significantly, including the inclusion of a Board of Directors. 

But the most relevant aspect of this article was that it promoted the “creation” of a Board without considering that a Board of Directors is part of a controlling system called Corporate Governance, which has a full set of rules, practices and processes that along with the participation of the Board of Directors and other management bodies, helps companies achieve specific goals, like increasing transparency and trust among shareholders and stakeholders. 

Corporate Governance and Board of Directors have been heavily criticized due to the additional costs they represent for a company and for the lack of recognized metrics that verify when corporate governance systems are actually increasing the added value of companies or becoming a competitive advantage for them. 

Unless a company is compelled to fulfill the legal requirement of having a Corporate Governance framework, its design and operation shall avoid, at all costs, leading a company into a trap of complicate rules, high Board members’ fees and other administrative burdens. Corporate Governance design should be done under a solid approach tailored to fit each company.

Therefore, instead of following a rule of thumb of three criteria to decide whether or not a company should implement a Corporate Governance framework including a Board of Directors, a more analytical approach should be followed by asking in the following order some basic questions, questions required for the implementation of any system as a solution in a company.

Regarding the problem: What does the company want to achieve or what is the problem that the company wants to solve by implementing Corporate Governance? Who benefits with this system-solution? What are the costs for the company if Corporate Governance is not implemented?

Concerning the context: What is the context of the company? Is the management structure or the corporate culture ready for this system or should the company take some previous steps before its implementation? 

About the solution: Is the Corporate Governance system the best instrument to solve company’s needs or are there any other alternatives? What are the ultimate benefits for the company that this system brings? What are the costs associated with this solution?

Considering the design: How do the company wants and/or can design the system? Who would be the owner of such system? Who should be involved in its design and execution?

Taking into account the degree of competitiveness that distinguishes the global business environment, every company has the genuine right to boost its competitive advantages by any legitimate mean. The implementation of a Corporate Governance framework as a strategy is one way to do it, when it is objectively evaluated and executed.