Entrepreneurs shun NEDs and boards, ACCA survey reveals

Entrepreneurs typically have little interest in having boards of directors in their companies, and believe Non-Executive Directors (NEDs) would simply put constraints on them running their businesses, a qualitative study of 60 Small and Medium-Sized Enterprises (SMEs), published by ACCA, (the Association of Chartered Certified Accountants) has shown.

The research, carried out by Prof. Colin Coulson-Thomas, author of ‘Developing Directors, a handbook for building an effective boardroom team’ found few SMEs even had working boards, and the handful of NEDs were usually relatives. Business owners liked to take the key decisions themselves and feared losing control and being constrained by ‘outsiders’. Even those who acknowledged that additional directors could fill existing skill gaps did not believe they would be able to afford them.

The study found that operational issues typically took priority over strategy with ‘getting through the next couple of years’ the key driver. Hardly any of the businesses studied had working boards which met regularly or addressed longer-term strategic issues. Boards and NEDs were seen as a ‘large company’ issue dealing with compliance rather than adding value to SMEs.

Adaptation chairman Colin Coulson-Thomas said: “Directors in many cases only tended to act as directors when required to do so, at agm time, or when approving the audited accounts. But in the absence of independently-minded NEDs, whose duty is to the company rather than particular individuals, many found it difficult to step up from discussion of short-term operational issues to provide strategic direction.

“What was most striking – and sad – about my findings were that virtually no-one among the entrepreneurs were able to sum up succinctly what was special about their business or what their vision was. Some of them had real potential, which independent advice in the shape of new directors could help them realise, but they could not see it. Many found it hard to believe that anyone outside the company could be genuinely interested in helping the business succeed and grow, rather than just trying to get something out of it.”

He added: “Entrepreneurs have a negative view of issues such as governance, directors and strategy and see it as irrelevant to them. It is crucial if we are to help these businesses to thrive that a way is found to redefine the positive role that boards can play, in a way that is meaningful to them. Otherwise the growth of potentially successful companies will be limited by the aspirations and capabilities of the founders, who view the business as ‘theirs’”.

ACCA believes the research proves the need to redefine governance issues in such a way as to make them more meaningful to entrepreneurs. This is a practical, rather than theoretical issue, as each company surveyed was found to be held back by specific deficiencies or obstacles which a properly-constituted board could have addressed.

Paul Moxey, ACCA Head of Corporate Governance & Risk Management said: “This valuable research shows that SMEs are missing out on the experience, objectivity, fresh thinking and skills that effective boards can provide. We need to address the reasons entrepreneurs are shying away from using other directors as they can provide a cost-effective way of developing these businesses beyond the often-limited horizons of the founders. Financial priorities are determined by their age and ambitions, and ensuring viability on their retirement is often the main pre-occupation. Whether it is the perceived cost of new directors, or a fear of ‘losing control’ that is driving the reluctance of entrepreneurs to employ boards, the end result is that their businesses and ultimately UK plc suffers.”

For more information please contact: Ian Welch, ACCA Head of Corporate Communications Tel: +44 (0)20 7059 5729 or +44 (0)7739 862928

Colin Coulson-Thomas’ study: ‘The Contribution of Directors and Boards to the Growth and Development of Small and Medium-Sized Enterprises’ is available on
http://www.accaglobal.com/publicinterest/activities/library/governance/cg_pubs

Coulson-Thomas’ study was the centre-piece of a debate held recently at ACCA on the issues of corporate governance and SMEs, held as part ACCA’s on-going initiatives in this area. A report on the debate will be available soon.

‘Developing Directors, a handbook for building an effective boardroom team’, by Colin Coulson-Thomas (ISBN 978-1-872980-32-4) is published by Policy Publications, costs £34.95 plus p&p and can be ordered from: http://www.policypublications.com/developingdirectors.htm

The approaches of successful directors and boards are discussed in ‘Winning Companies; Winning People, the differing approaches of winners and losers’ by Colin Coulson-Thomas (ISBN 1-904235-58-1) which costs Price £19.95 plus p&p and is available from: http://www.coulson-thomaspublications.com

Professor Coulson-Thomas has helped over 100 boards to improve board and/or corporate performance and spoken at over 200 national and international events in 35 countries. He is a member of the Professional Accreditation Committee and Board of Examiners of the Institute of Directors and the ACCA Governance and Risk Management Committee and can be contacted by Tel: 00 44 (0) 1733 361 149 or email: colinct@tiscali.co.uk and via http://www.adaptation.ltd.uk

ACCA is the largest and fastest-growing international professional accountancy body. It has some 296,000 students and 115,000 members in 170 countries world wide.