When does a small limited company need a functioning board?

“An external board member can inject energy into a company,” says Rasmus Nybergh, a partner of the Boardman network.

Rasmus Nybergh, a partner of the Boardman network, says that a functioning board of directors is an excellent resource that also benefits small companies. Yrittajat.fi asked Nybergh for his views on the work of a board.

What size limited company needs an active, functioning board?

“It’s not so much a question of the size of the company as the stage that the company is in. A one- or two-person company rarely needs an active board,” Nybergh says.

Typically, the owner, who in a small company is often running the business, chooses the board. As the owner, they most often choose just themselves as board members. If a small company’s board has other members, however, they too are often from the inner circle of owner-entrepreneur, nor do they bring significant new added value to the development of the business.

“Board work that generates added value only begins when there is an external member on the board. However, you should only ask an external member to join the board when there are reasons for a board to work actively,” Nybergh says.

Why should a company have an active board?

“A company should have an active board when the business owner wants and is able to do the things that are agreed in board meetings. In other words, the business owner is ready to talk strategically, listen to advice, take action on the basis of the discussion and put the business’s administration in order, if necessary,” Nybergh says.

In what kind of situation can a functioning board be beneficial?

“The managing director, who is often the business owner themselves, often has to make decisions alone. A functioning board gives them a forum to bounce ideas around in, share their worries, and dream about the future,” Nybergh says.

“A functioning board could be necessary when the company is getting new owners, the ownership is in crisis, the ownership is being redistributed, or when the owners’ goals and opinions change.

“An external board member is often able to think about the company’s interests with outsider eyes, making situations and discussions like these easier.”

Nybergh says that board members should equitably pursue the owners’ interests via the company.

A board could also be necessary in situations where the company is growing, new business areas are being set up or bought, and an owner needs support for areas that are not their strengths.

“A growth entrepreneur often needs help in situations that they have not faced before. These include international expansion, mergers and acquisitions, recruiting specialists, managing supervisors, investments, and cash-flow management.”

In what kind of industry-specific situations does a company benefit from a functioning board?

“In situations related to skills and networks. If the entrepreneur and owner are not masters in their own industry, having an industry expert on the board can provide credibility and experience, thus preventing pitfalls. An organization in a sector in the midst of digitalization and globalization benefits if it gets the chance to use someone who’s already gone through the same thing as a sounding board,” Nybergh says.

What is the alternative to a functioning board?

“In a small company, alternatives to a functioning board include a business mentor or regular coach for the entrepreneur, or assembling an advisory board.”

What is the board’s role?

“The board is responsible for the owner’s will being fulfilled in the company. It also supports the managing director. It oversees the administration of the company, ensuring that it is organized correctly. It is responsible for ensuring the oversight of the company’s accounting and asset management are appropriately carried out,” Nybergh says.

The board or its members cannot obey a decision of the AGM, advisory board or board which contravenes the Limited Liability Companies Act or the company’s articles of association.

Where can a company find an external board member?

“In a smaller company, it’s better to find an all-rounder than a narrow specialist as the first external board member. A good board member will be experienced in running a smaller company. They’ll be able to encourage the managing director to develop the business and advise on administrative matters.”

Nybergh says that everyone has personal networks that could provide suitable board members.

“However, it’s a good idea to draw up clear criteria for skill requirements for board members and to cast a wide net for suitable people.”

There are several associations in Finland whose members are interested in serving on boards. Boardman, Hallituspartnerit and Directors’ Institute Finland are examples of such public-interest bodies. In addition to your networks, you can also directly head hunt external board members.

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