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How Should A Director Board Operate?

Situation of Directors and Board of Directors

Many small and medium businesses that are registered as a Private Limited Company or Public Limited Company have Directors who are not functioning effectively or productively in Kerala.

Many companies see it as a statutory formality and hence do not take it seriously from a management point of view. Many give directorship positions to shareholders who invested a specific amount in the company, without considering what “value” they can add to the business. These directors may or may not be involved in the management or leading the firm. Some even give directorship to all its shareholders!

So when the very purpose of the Board is neglected or misunderstood, it is obvious that the Board of Directors won’t be adding a good value to the business. 

AASC can play a key role in professionalizing boards of companies

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The real role of a Director Board

Ideally, the Board of Directors will have a Chairman, the Directors and a Managing Director.

The role of the Directors is to lead the company, not essentially managing it. The management is done by the CEO, and may be under the direct leadership of the Managing Director.

The role of the Board of Directors can be briefly listed as,

  1. Ensuring legal compliance 
  2. Ensuring the company and its management does not do anything that harms the shareholder interest
  3. Planning and monitoring the growth of the company
  4. Ensuring the company is operating as per its vision and mission. Creation of the vision.
  5. Assisting the management in problems that they find it difficult to solve. This requires technical knowledge and expertise from the director’s side.
  6. Designing or Approving Organization Structures, Systems, Policies, etc. Either the board has to do it, or engage consultants to do it, and then approve it
  7. Recruitment of senior employees (who will be recruiting the rest of the team). This includes the creation of the organization hierarchy, job descriptions, remuneration packages, and work culture principles.  Either the board does it, or appoints a consultant to do it, and finalize the selection. 
  8. Approve important financial transactions be it related to investment, buying of assets, or creation of liabilities, that the company management suggests
  9. Approve suggestions of the management with regards to the creation of reserves or payment of dividends
  10. The Board has to engage external agencies and consultants, to audit not just the financial performance of the business, but also do management audits to ensure that management is managing the business well. It will involve doing studies and surveys on employees (for employee satisfaction) and customers (for customer satisfaction). This will empower the Board with data, beyond the information provided by the Management

So as you can see, the role of the directors is not to do daily operations. But to be the guiding and monitoring force. It is part of the process of separating management from ownership.

What is wrong with our Director Boards?

But unfortunately, instead of the above-mentioned roles, most small and medium companies have managers who are given the title of directors, because they are also shareholders of the company.

This means the real function of the leading and direction does not happen. This is not an issue if the company does not have shareholders beyond the directors working as managers. 

But in companies, where there are several shareholders, this system can mean a lack of accountability and be a cause of direction loss. 

How Management Consultants Can Assist the Board of Directors?

 

Sometimes, the board of directors will require the assistance of external consultants (like AASC). Some of these situations can be,

  1. When the board of directors has an important decision to take and needs an external expert to give an opinion on the topic. This expert opinion is very useful to convince the shareholders
  2. When there is a crisis between the Board Members and important decisions are not possible, external consultants can help in resolving the matter 
  3. As part of reviewing the performance of the management in terms of management, employee satisfaction, and customer satisfaction, the board of directors can employ management consultants  to do the review and submit reports on the same  
  4. If it’s a new venture, the Board of Directors can engage business consultants to prepare the detailed strategy plan or detailed project report with feasibility studies and organization structuring

If you have any points, experiences to add, or if you don’t agree to the post, please comment below. 

Explore how AASC can help transform your business. Call now +91-7558-900-800

AASC is a Business Strategy & Management Consulting (aascglobal.com) firm that serves Promoters to study, plan and set up new ventures, and Entrepreneurs to manage and grow their business, in a professional manner. 

To know more about AASC services for new ventures, please visit https://aascglobal.com/consulting-for-new-ventures-and-startups/

To know more about AASC services for businesses, please visit https://aascglobal.com/consulting-for-business-growth-and-expansion/

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Location Does Matter

One of the biggest mistakes that promoters make, is falling in love with a business idea and believe that the idea will succeed no matter where it’s based.

Many a time, entrepreneurs start businesses they “think” people want, and get so hyped up about it. So much so that, if they didn’t get the right place, they start anywhere available, believing that customers will come to them. And that might not actually happen. The business fails.

Promoters spend a lot of time, sometimes even years, trying to find that one big idea that will click. A business idea is an opportunity that has potential in a market. But having a ‘Eureka’ moment is not enough to jump-start it as a business. 

For a good business idea to win, it has to satisfy several criteria. In this post, the ‘Location’ is our topic.

What is the point of starting a business where there are no target customers? That is why, when it comes to location, the right market has to be selected. So what is a market? It can be a village, a city, a district, a region or a state, or even a country or several countries. But it needs to have the target customer segment in it.

Once the market is selected, comes the second step. The exact location of serving the clients. This is specifically important where customers or clients have to physically visit the premises. 

The location in the market is crucial. It has to be located where it’s closest to the target customer and is easily accessible and visible to them. That is the reason why shops that are based in the right street but the wrong building fails. Or based in the right building but the wrong floor fails. Or based on the right floor but the wrong area fails. Or based in the right street but wrong visibility fails. It’s a very important matter and it’s a shame when a great business idea fails just because the location was not right.

So why do entrepreneurs make this mistake when it sounds like common sense? Several factors can play here.

One reason is the non-availability of space in the ideal location. In which case, we as Management Consultants would advise not to start now and wait for the right location to come up, or move into another market where the right space is available.

The second reason is the high rental of the properties in the right location. This is a tough reality and one has to be careful here. When faced with such a situation, the entrepreneur has to evaluate how much rent is viable for the business. This might be complicated for most entrepreneurs. In such cases, it’s ideal to engage management consultants or management consulting firms (like AASC) to do a detailed analysis on the financial viability of the location, and check if that rent is viable. Sometimes, a location that has high rent can still be a profitable option.

The third reason can be impatience to do a proper study. Promoters or entrepreneurs can fall in love with an idea, that they simply want to start ASAP. They get hold of the first property and launch the business there. And as the days pass by and they witness lower footfalls, they realize that the location or the building or the floor is not ideal for their customers. Here we as management consultants, always ask our clients to take it easy and do a proper study. In fact, a typical study at AASC takes about 2-3 months to complete. With the market study taking about 30 to 45 days. With such a detailed study, the pros and cons are evaluated before making a final verdict of not just the location but the business itself. 

The fourth reason can be overconfidence. The illusioned belief that the product or service that the entrepreneur intends to provide to the customer is so much in demand, or the price is so attractive or the quality is so high that the customer will seek them, no matter where they are. In most cases, it does not work. And the business goes belly. But in some rare cases, it can work- for some time. This is when the customers really do need it and they take the pain of reaching you despite the trouble or the inconvenience. But the moment a competitor starts the same business in a more ideal location, all the customers will move to him. Why? Customers are not loyal to any shop or brand, they are loyal to those who provide them what they want, when they want, where they want it, and in the way they want it.

Conclusion:

Don’t kill a beautiful business idea by starting it in the wrong place. This is applicable not just to retail outlets, it’s applicable to any business be it manufacturing, hospitality, service, or education. Even online businesses, have to be careful of the locations they choose. And another place to watch out for is the location in Search Engines, as customers use it to search for businesses. If it’s not on the first page, it’s not in a good location online.

It’s always recommended to start a business after a proper study. Do good market research, select the right business model, design the right management plans and systems and assess its financial feasibility. And since entrepreneurs might get emotionally inclined towards their business idea, and because in most cases promoters are not trained to do these works professionally… it’s better to engage professional management consultants like AASC (aascglobal.com)

So location does matter.

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Is Management Consulting really worth it? Does engaging Management Consultants really help improve a business?

Let me explain with an example, with an Apple.

Suppose I ask a group of people to draw a beautiful apple. And I place an apple before them.


Will the drawing of each person be the same?
Will it all look exactly like the real apple?

No, is the answer. Even if the apple is perfectly beautiful, the drawing capacity of the people makes it beautiful or ugly on their canvas.

Similarly, when appointed by a business to provide consulting, management consultants study the business and show the perfect method the business should follow (the apple), but it is the leadership (or drawing skills) of the Entreprenuer that determines what percentage of desired outcome is accomplished.

So is that the only role that consultant plays. No, depending on the capacity of the consultant they can more helpful.

To begin with, in real world the entrepreneur might not know what he really wants. There is so much noise by information that clarity of thought is normally lost. So as per our example, when the entrepreneur really needs an apple, he is looking at an orange or a watermelon. It’s the role of consultant to show him and make him focus on the apple.

Secondly, not all consultants are capable and perfect, like with any profession. So the quality of their advice depends on their capability. As per our example, it’s the difference between a consultant showing a fresh beautiful apple or a rotten apple. Both are apples, but one is relevant and the other is not.

Third, the right consultant is a guide, who will not only show you the right apple to draw but also helps you learn how to draw. The faster you learn to draw, the better, your drawing would be. In business it means, not just showing you what you should be doing, but also evaluating your performance and teaching you what you should do and when.

So for 100% result in transforming businesses, a good capable consultant and a good fast learning entrepreneur is essential.

That 100% will come down, depending on lowering the quality of the entrepreneur and the quality of the consultant.

Hope it was simple.

Do you agree or not? Share your thought.

To know more about how AASC can help you improve your business or prepare a feasibility study & strategy plan for your new ventures, please visit aascglobal.com