It's a common enough scenario, and one that can theoretically continue provided that the company is solvent and small enough for one person to have total control. But in many cases, there comes a time when, in order for the company to move forward, help is needed from an effective board of directors, and tension starts to develop.
So what can companies do to avoid a potentially destructive situation? One solution may be to make alterations in the board architecture. The function of the chairman, for instance, needs to be clearly defined and should involve more than being just a non-executive director. It is imperative that the owner- entrepreneur does not fulfil the functions of both chairman and managing director.
Above all, the chairman should be able to:
Manage and develop the relationship with the owner and the other executive directors.
Ensure that the managing director's proposals are given a "hard look".
Assess the attributes, qualities and performance of the other directors.
Become a "friendly and confidential ear" for the rest of the board, including the owner.
Ensure that the board functions professionally.
Gain the total confidence of the owner-entrepreneur over time so that eventually he or she can be advised to hand over to a successor who has been groomed or recruited carefully.
The title of chairman can, of course, bruise egos. It may therefore be easier to describe the desired attributes than locate all of them in any one individual. In any case, the company may need more than one non-executive director to fulfil these functions.
A further implication is that as the board's relationship with the owner moves from puppet to partnership, the directors may need to improve their skills or develop new ones. Primarily, these are the ability to think strategically about the company; give strong leadership; and learn to analyse information from a range of sources before reaching a conclusion that's in the best interests of the company.
Even the issue of personal integrity may now be tested. The board may for the first time be put into a position where there is open disagreement or a need to assert collective responsibility outside the boardroom.
The new environment will mean that the balance of the directors' work will start to shift. They will need to step back from their executive function to reflect on corporate strategy. This will have a knock-on effect on the people who work for them. As a result, the company will start to move faster, encouraging innovation at all levels as the puppet strings that started at the top and became entangled are hacked away. Some incumbent directors may even need to be removed.
Governments have a role to play in creating the right infrastructure for companies to thrive in. A large part of the economy depends on the growth and survival of small firms. In the UK they account for 99.6 per cent of the total business population, 44.3 per cent of total turnover and 51.2 per cent of employment.
It is always the management of companies, particularly the senior management at board level, that determines their rate of economic performance. Consider the findings of Mr Justice Parker, who recently concluded that the collapse of the Barings Group would in all probability have been avoided but for the "cavalier attitude" towards director responsibilities exhibited by some directors of the bank. And although corporate disasters do not always hit the headlines, failure at board level has economic and personal consequences for organisations of all sizes.
Decisions may be made by entrepreneur directors, by the directors of a family-owned company, by the professional director who sits on a board with family or entrepreneur directors, or by the non-executive director or executive director of a large listed company or, indeed, of any size of company. But whoever it is who fulfils this function, he or she must question, on a regular basis, both their own role and that of others on the board. They have to be as dynamic as they want the company to be.
Allan Blake is a management consultant at the PA Consulting Group's Management Development Practice. His latest book, `Dynamic Directors: Aligning Board Structure for Business Success', is published by Macmillan Business, price pounds 25.Reuse content