I was invited to the Institute of Directors‘ First Generation Governance Workshop last week. Run by Marie-Claire and Frances from Vault Consulting, the session was meant to survey the SME landscape for attitudes toward governance for companies who either didn’t have a board, or had recently established one.

The participants at the workshop were an interesting mix, who thanks to Chatham House rules will retain their anonymity, covering a range from professional directors, startup entrepreneurs, people in industries servicing the sector (insurance, accounting, consulting etc), and most importantly, managers at the Institute of Directors.

There is some pretty strong recent New Zealand research suggesting that high-growth companies with boards yield significantly higher returns than those without boards, including:

• Clever Companies (PriceWatherhouseCoopers 2008)
• ANZ Privately Owned Business Barometer Survey 2008
• Managing High Growth Ventures: A survey of governance practices in New Zealand’s fastest growing companies, (Deloitte 2008)

And Yet … many companies are either unaware of the benefits of establishing good governance, or unwilling to expend the resources or effort required to get decent directors and/or advisors on board. Why is this?

The participants raised a number of hypotheses, including:

• Good advisors are too expensive and/or difficult to get
• People have heard horror stories about companies who had the wrong people on their boards
• Founders can be self-centered, and don’t want to be distracted by others whose vision might not be fully aligned with their own
• Boards can get bogged down with compliance issues, resulting in the foot being placed on the brakes rather than the accelerator
• Directors are seen to be “pale, male, and stale” – a significant disconnect with the diverse go-ahead high-growth scene

So what’s the solution to the problem? One of the participants suggested that IoD’s Marketing Manager be sacked, but as they’re mainly a subscription-driven organisation with elected branches, I would have thought that IoD’s existing members (myself included) are at least as much to blame. Nevertheless IoD management does deserve a rark-up, or at least a wake-up – unless more is done to make IoD membership more attractive to a younger audience it will find itself facing demographic heat-death.

The deeper problem is getting the message across to high-growth companies that good governance is a critical tool to survive and thrive. Yes, compliance is a box that needs to be ticked, but the real value of good governance comes from setting a strategy and driving the CEO to achieve it, supported by the experience and networks that a good board can bring to bear.

A number of people suggested rebranding governance (eg the “board room” becomes the “ideas room”) but twee semantics don’t address the real problem.

It was also suggested that “someone” (ie gummint) run a series of networking evenings to bring high-growth companies up to speed with buiding a great board. That’s a good idea, but the gummint has done to death educational opportunities for entrepreneurs.  And shouldn’t entrepreneurs and investors take responsibility for the things they can control?

I believe it’s time for the IoD to reinvigorate themselves, building new services for new companies under a new sub-brand, using new networks to create a new generation of new directors. As an example, I offered to help IoD start and manage an IoDNZ LinkedIn group to begin creating a such a new network, and suggested to her that they run a significant number of loss-leader spots on excess capacity on existing IoD courses for new directors. This two-pronged attack provides a good combination of education, knowledge transfer from old hands to young upstarts, leverages an old network into a new network, and would cost little. The result would benefit all concerned.

Sure, sex sells, and sexing up governance might make it more interesting, But the bottom line is…

Companies seeking angel investment, listen up: you’re much more fundable, will attract a significantly higher valuation, and have a greater chance of achieving your dreams with an appropriate board directing your company.

If a company isn’t willing to take that advice, they’re probably not worth funding.

High growth driven by a great board with an excellent strategy executed by a brilliant management team — now that’s sexy!