Strategic Planning in the Small Business

Unit 6

HO 6-5 (Continued)

The

Sad Truth is -for

the Most Part -

Boards Do Not Help.

Roger H. Ford,

Ph.D.

C O N

Author of Boards

of Directors and

the Privately-Owned

Firm: A Guide

for

Owners,

Officers, and Directors

which will

be published in February,

1992, Dr.

Ford is the Zane

D. Showker Professor

of Entrepreneurship

and the Director

of

the Ctntcr

for Entrepreneurship

at James Madison

University in Harrisonburg,

Virginia.

He currently serves

on four boards

and has assisted dozens

of others.

Do boards

of directors really

help small businesses?

This is an important

question, and

I am looking

forward to addressing

it. But, my answer

will not be complete

until I also address

another important

question: Can boards

of directors really

help small businesses?"

To the

first question, "Do

boards really help

small businesses?"

the sad truth is, for

the

most part, no, they

do not. I am speaking

here in descriptive

terms, which

means that the

simple fact

is the vast majority

of the nation's approximately

20 million

small businesses

are not

being helped

by boards of

directors. There are

two arguments which

I offer in support

of this

fact.

First, the empirical

evidence indicates

that most small

businesses do not

have a working

board of directors.

Second,

which do

have working boards,

of those

firms

the empirical

evidence

does not suggest

that these boards

improve the performance

of the firms.

Let's look

at each of

these arguments in turn.

Many firms do not

have a board beyond

that minimally required

by law, which

in most

states is a

single director (i.e.,

the owner is the

sole director). Others,

while perhaps

having

more than one

director on paper,

do not meet

regularly or perform

any duties normally

associated

with a board of

directors. My study

of several hundred

Inc. 500 firms indicated

that

34 percent of

these successful businesses

had no board,

and of the remaining

66 percent that

indicated

they had a board,

over half of them had

no outside directors

(Ford, 1989, 1988).

A

study by Ward and

Handy roughly confirmed

these findings

by discovering that

more than half

of the small businesses

in their sample

did not have an outside

board (1988).

According to these

authors,

it is conventional

wisdom that only

5 to 10 percent of

all private companies

have

outsiders

on their boards, and

I believe this is

true (Ward, Handy,

1988).

The first

argument for my

statement that boards

are not helping

small businesses, then,

is the

simple fact that

they cannot be helping

if they do not

exist. Most of America's

small

businesses

are not receiving

help from boards of

directors because

they (for the most

part) do

not

h ave boards of

directors!

The second argument

that boards

are not helping small

businesses addresses

those firms

which do have boards

of directors.

Even if they are in

a minority relative

to the total universe

of businesses, there
are probably a
million or more small
firms which have
boards, including

a good percentage
that have outside directors.
How about
these firms, are they
being helped by

their boards?
The answer, again,
is no. For the most,
these firms are not
receiving much help

from
their boards.
The literature overwhelmingly
supports
this position.

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