Martin Bøge Mikkelsen

This is a vast question depending on your type of business.
In Danish ApS and IvS, no board members are necessary, although, it is often the case. In a Danish A/S, however, at least three board members are required. In many companies, the owner and the CEO is the same person. It is essential to be aware of the purpose of appointing a board: Is it to improve business or for prestige purposes?

If you want to add value to your company through professionalization, it is a good idea to have a professional board to strengthen your business. A board contains a number of dedicated members, who wish to improve your business. But remember that they are also meant to control it, so you need to be confident enough to receive this challenge.

A board is appointed from skills and diversity, the latter meaning according to gender, geography, and professional experience within the given area. It is also important that the board possesses the same set of values as the company and management.

The board members’ network – and their willingness to make use of it – are also valuable as to entering new places.

The chairman’s personal and professional skills are essential, since he/she is the link between the shareholders/owners, the board, and the management. Besides leading, organizing and prioritizing the board work, the chairman also needs to be a good sparring partner for the management. Furthermore, it is necessary that he/she can make room for value creation and get things done, motivate and spar in connection with e.g., management, strategy, growth plans, budgets, and other parameters that influence the company. The chairman’s empathy and ability to prioritize as well as support the management in connection with their workload are also of great importance.

I – together with four other directors – have personally attended a board in a company with a turnover of less than a million DKK and only two employees. Here, however, we were co-owning the business and carried out other tasks. When sold, it had grown to 42 employees. The company was sold for an amount in the three-digit million range. So, in principle, a company cannot be too small – but the challenge is to make the number of leaders and the number of employees match.

The board of directors is responsible for the strategic management of the company in general. It takes care of the company’s interest and sets its values and objectives. It needs to bear a clear vision of all risks in mind besides controlling and following up with the management.
The board is also the link to the shareholders and is considered the top of the company. Therefore – in case of professional boards – the management executes decisions made by the board members. In case of other types of boards, things can be quite different.

I usually divide board of directors into five categories, and I clearly prefer number four.

1. ‘Aunty board’: Consisting of family and close friends. They are not necessarily competent to sit on a board, and if they are, they do not dare to contradict the owner. They are not well-functioning sparring partners, and all power is given to the management. In these types of boards, the manager does not want interference.

2. ‘Cosmetic board’: Usually consisting of members whose appointment is based on their name and image in the community. Also here, all power is given to the management.

3. ’Supervisory board’: Watching that the job is being done and that the company complies with the demands. The board is not adding any value to or participating in developing the company – but simply controlling it.

4. ’Decision making board’: Consisting of top professional members. Here, the board leads the company strategically and makes all decisions. The power is handed over from the owner or manager to the board a step up in hierarchy, and the management works in accordance with the board’s decisions to add value and develop the company.

5. ’Management board’: Consisting of a mix of managers and board members. This type of board is not legal here in Denmark, however it is often seen in the US, where the CEO functions as both manager as well as chairman of the board.

In a board of directors, the members are often unpaid and free of any responsibility.

On the contrary, a board chairman or board member is obligated and can be held accountable for his/her actions.
There is no difference in how they act in relation to sparring and input. In both coincidences they are expected to contribute with what they believe is in the interest of the company.

If you are in doubt of whether you are ready to incorporate a board in your company, it is possible to start off with an advisory board to get used to pressure and challenges in making the company more professional.

If the advisory board is successful, you can later convert to a board of directors.

First and foremost, the company must set clear goals and expectations as to what the board should be doing, and what the company wishes to accomplish with a board.
It is the owners who are responsible for finding the board chairman, and it is important to be attentive of good chemistry and aligned values.

It is critical to find the right fit for a board chairman; it is a screening process, and it is a good idea to meet several times to align expectations and values beforehand.
You should acquire a board chairman with a commercial understanding and a commercial mindset.
A board chairman must know the board craft and having an education in board work is extremely important. The board chairman should be able to bring all skills and competences with him into the boardroom.

It is a success the second the company owners experience an increase of value caused by an active and professional board that improves the management.

It is the board chairman’s role to bring out the best in the management. This meaning the chairman being responsible for both internal and external value improvement.

Internally it could be by improving efficiency and development, and externally it could be by increasing net income and equity capital.

On the contrary, the board of directors could be a failure, if the members are not sufficiently competent, or if the management does not respect or actively take advantage of their expertise.

Companies have different lifespans and evolve through different phases.
Current and future phases should be considered when choosing a board of directors.

The board of directors might need replacing, if the company is just ahead of a turnaround, a new growth strategy implementation or something entirely different.

In the completion of such a phase, a need for new competences and skills might be required.

This applies to both the management and the board of directors.
It is a good idea with a yearly evaluation of the board of directors and management where there is room for questions and feedback: Do we have the best constellation?

This kind of evaluation is a part of the annual cycle of work in a professional board. It is often an advantage, if an external consultant does the evaluation of the board.

An assignment or case is to be discussed by the board, when it is of strategic, commercial, or economical essence.
Many companies or corporations include specific types of assignments relevant to the board in the ordinances, shareholders’ agreements, or rules of procedure.

The company owner or chief executive officer, alongside the board chairman, sets up goals and targets for the company.
Thus begins a strategical process, where the management devises a proposal for beacons and a strategy.
The proposals become part of a strategy-workshop involving the board of directors. As a result, a final strategy is compiled.
The strategy sets the foundation for the following year’s executions and budgets.

A process like this should be naturally incorporated into the annual cycle of work, alongside the evaluation of and expectations to the board of directors.