Creating the Organization 351
tees to study special issues, such as the protection of minority shareholder rights.
They must attend board meetings at the request of the chairperson.
Compliance with Sarbannes-Oxley Section 404. The Sarbanes-Oxley (SOX)law
was enacted in 2003 in the wake of serious breaches of fiduciary responsibilities and of
criminal activities by a few major corporations (e.g., Enron, WorldCom). Section 404
of the act describes the types of internal controls and auditing processes and responsibil-
ities of firms and their boards. Although the congressional intent was to stop abuses by
large corporations, the Securities and Exchange Commission has not exempted smaller
businesses from the law. Businesses covered by these regulations will incur higher costs
of compliance, especially in the first year. If a venture has outside investors and is regu-
lated by the SEC, it must comply.^39
Guidelines for Successful Boards
Information and research about top management teams and group processes can pro-
vide guidelines for successfully selecting and employing advisory and fiduciary boards.
These key factors should be part of the creation of the new venture’s board of directors:
- Keep the board to a manageable size, 12 to 15 members at most.
- Board members should represent different capabilities and resource bases. For exam-
ple, the board should have a balance of people with financial backgrounds, opera-
tional and industry experience, and local community knowledge.
- Because the board’s primary responsibility is to the shareholders, both majority and
minority shareholders should be directly represented.
- People with good communications skills and the ability to voice an independent
opinion are needed. If everyone agrees about everything all the time, there is not
enough diversity on the board.
BUILDING AN ENDURING ORGANIZATION
The founder may not realize it when the venture is launched, but many of the earliest
decisions can influence the firm for its entire history. These decisions become the DNA
of the company. The culture of the organization is imprinted early, and the founder
makes the largest impact on that culture. If the organization is going to survive a long
time and become a visionary type of company, these initial conditions and decisions
should be carefully considered.
Visionary companies are different. James Collins and Jerry Porras reported in a large-
scale study the dimensions upon which these differences were based. They reported their
results in the now famous best-selling book, Built to Last.
40
Collins and Porras seek to
identify the characteristics of these remarkable companies as well as the underlying caus-
es of venture differences. For example, what factors explain how Motorola successfully
moved from a humble battery repair business into car radios, televisions, semiconduc-
tors, integrated circuits, and cellular communications? Zenith started at the same time
with similar resources but never became a major player in anything but TVs. How did
