Private companies aren't obligated to have outside directors, and there's evidence that businesses are eschewing them. Doing away with your board feels efficient because it saves time and money. But is it really a good move?
According to University of Windsor business school professor Roger Hussey, private companies with boards did better in the last recession than those without them. This shouldn't come as a huge surprise but it's nice to have some data attached to it.
Why would non-executive directors make a difference?
Perspective. Every business, no matter how small, gets wrapped up in itself, its own politics, and processes. That means every CEO needs advice and objectivity from those who care about the company's success, but can view it from a healthy distance.
Contacts. No individual's contact book is big enough. Every company needs help growing. Outside advisors and directors can broaden a company's reach and raise its profile.
Experience. Most companies follow a pretty well-understood life cycle, each with its characteristic challenges, advantages, and symptoms of health. It's profoundly helpful to distinguish between crises that are normal for your company's stage, and those that are anomalous and therefore troubling. If you're making a big acquisition, no lawyer will give you the kind of unfettered advice that you will get from someone who's done such deals before. Smart people are willing to learn faster from friends.
Daring. When you bring in board members, you create an opportunity for people to disagree with you. This is essential. As a smart entrepreneur, you need challenge, argument, and debate from knowledgeable people who are on your side. If you fear those questions, what secret terrors are you hiding?
Of course to get the full benefit of a board, you need to take it seriously and give it both time and money. If you don't, you may well find yourself short of both.