Entrepreneurship and the Board: Questions for Directors

Prof. Colin Coulson-Thomas
As the name suggests, directors should provide strategic direction and purpose. Sometimes in the boardroom if feels as though one has to swim against currents to move in a desired direction against prevailing trends and work hard to achieve corporate goals. There is a growing disconnect between existing capabilities and practices and shifting aspirations, requirements and preferences. More than a change of direction might be required. The challenge could be to find new routes to different destinations rather than a better way of getting to an existing one.

Emerging Requirements
Do existing strategies need to be reviewed, or are new strategies needed? Could existing capabilities be used in different and better ways, or are additional ones required? Can existing elements be used in a different combination, or are new elements essential? Should different possibilities be tried, or are new elements required over and above current options? There may be ideas that could be moved from one market or sector to another. Sometimes the ingredients are available, but the right recipe is missing. The bonfire may even be built, but a match or a spark is needed to light it.

Policy makers can face similar challenges to those confronting directors. Jobs are being displaced by a range of developments from further automation, greater adoption of robotics and artificial intelligence to the wider use of drones, 3D printing and other technologies. Finding sufficient replacement jobs is a challenge for many economies, whether the demographic profile is an ageing population or more young people looking for work. India needs to offer some ten million new jobs each year for new entrants to its work force. Where will they come from?

Who will create tomorrow’s jobs? Will it be large companies that are focused upon improving existing operations and replacing people with technology, in order to speed up responses and remain competitive? Will public sector infrastructure and public works programmes on a scale to absorb large numbers of young people be affordable? In an era of automation, technological advance and e-government, how many people will be required to deliver public services? In India, as agrarian, retail and distribution revolutions occur, who or what will support those who are displaced?

Existing Arrangements and Institutions
Some institutions have been slow or unable to respond. Will their reputations decline? Is there growing distrust of current elites? Are many of those in power perceived as mainly concerned with their own self-interests? Directors are often in the news for receiving large pay increases. How are they regarded? In some countries, large companies have held off on major investments and public bodies have struggled to cope or determine a convincing way forward. It is small companies and entrepreneurs who have been creating new jobs.

The democratisation of means of expression and routes to entrepreneurship can erode the relative power of those who have been able to control others, whether in a command and control structure or an authoritarian regime. Is this causing a reaction against what are seen as self-motivated and protective establishments, whether unaccountable bureaucrats or corporate boards? Is there a lack of trust in business and other leaders? In insecure and uncertain times, when developments are difficult to predict and prescriptions raise more questions than answers, why should shareholders or electors have confidence in them? How should directors respond? Is entrepreneurship the answer?

Do the people and processes of major companies enable them to work and collaborate with smaller enterprises? If those running larger businesses are reluctant to either let go or invest in new ventures, to what extent can entrepreneurs and smaller businesses, many of which are owner-managed and lack an effective board, fill the gap in terms of wealth and job creation? Must the two go together in the sense that without incomes people may be unable to become active consumers?

Entrepreneurs and Entrepreneurship
The term entrepreneur is often associated with someone who starts a business involving a significant degree of risk, which may extend to the possibility of incurring a loss in order to make money. Being entrepreneurial is similarly linked with managing an enterprise in a way that incurs risk in order to achieve a positive financial return, while entrepreneurship could be considered the process involved. Classic entrepreneurs are creative individuals, such as Chester Carlson who invented the xerographic process, or Sir James Dyson a pioneer of better and bagless vacuum cleaners. Others start a business by applying an existing model in a new location or context.

The number of new business start-ups is increasing. Even though they may not be founding entrepreneurs, can others be entrepreneurial in how they set about building an established business or generating additional income streams? How relevant are entrepreneurs, entrepreneurship and being entrepreneurial to the boards of long established companies and larger, listed and family companies? Are they primarily of interest to small businesses and early stage enterprises?

Sometimes those who do not consider themselves to be natural entrepreneurs can capitalise upon the desire of others to start a business. A company that is short of capital could encourage others to take out a franchise, rather than itself fund the opening of new outlets or the rolling out of an innovation. A management buy-out could be a way of divesting an activity which while promising is not considered a strategic fit and might distract people from a mainstream business.

Entrepreneurship Helps and Hinders
Traditionally directors have had to balance creativity and prudence. As most new products fail, steps need to be taken to ensure responsible risk taking. The challenge is to ensure the prevention of downsides does not preclude upside gains. To what extent do boards need to be entrepreneurial? What can directors and boards do to help ensure that people in the companies they are responsible for are entrepreneurial? Are there open routes through which fresh ideas and proposals for new ventures can be raised? Are experts and professionals a hindrance or a help? Do they follow fashion or think for themselves? Their preferred or recommended ways of doing things may work, but do they also discourage and inhibit the search for better alternatives?

Diverse and fluid networks of relationships that organically evolve and adapt can be more conducive of entrepreneurship than a rigid and tightly controlled organisational machine. To what extent can existing businesses transition from current models, that remain stubbornly bureaucratic and are still often run on a top-down command and control basis, to incubators of new enterprises? What do directors and boards need to do to support this process of transformation and reinvention?

Can sheer scale inhibit individual creativity and expression? Boards need to consider what value a company’s capabilities can and should add in relation to proposals for new income streams. Should the creation of smaller units to progress particular ideas be encouraged? Should each of these be allowed more freedom in terms of how they operate? Should central departments be specifically required to provide enterprise support to new ventures? Will this require new capabilities or contracted in support? Should employees be offered an equity stake in businesses they are building? What would the implications be for staff who are not involved with new enterprises? Increasingly, more companies may resemble portfolios of innovation-based entrepreneurial ventures.

Reviewing Governance Arrangements
In relation to governance arrangements, board behaviours and legal and regulatory requirements, is there too much emphasis upon compliance at the expense of building businesses and encouraging enterprise? Does the focus of legislators and regulators appear to be mainly upon penalties for non-compliance as opposed to incentives for innovation, enterprise and wealth creation? Is the emphasis upon reporting the past rather than creating the future?

When choosing new directors, should one look for lawyers and accountants, or people who have set up and run businesses, and/or those with an understanding of how digital technologies can best be used? In some quarters are entrepreneurs seen as cowboys? Are boards concerned with controlling them rather than supporting them? Can the assumptions, attitudes, and perspectives of current board members and existing governance arrangements bridge the gap between their past experience and the aspirations of contemporary internet entrepreneurs drawn from a different generation?

New structures, processes and support mechanisms may be required to encourage responsible entrepreneurship. How relevant are lessons drawn from the experiences and track records of many directors to contemporary and future challenges? Do they relate to opportunities that may arise in a very different market and technological environment? Existing business models and forms of organisation may or may not be appropriate for what is to come.

What is an entrepreneurial company? Should it be organised differently from others? Does it require particular governance arrangements? Do all companies need to be entrepreneurial? What would this mean for the selection of directors? What are the implications for the structures of boards and how they operate? In dynamic and fast moving contexts, does waiting for the next monthly board meeting to discuss a change of direction, policy or priority make sense?

Entrepreneurial Vision and Purpose
A search for purpose appears intrinsic to the human condition. Individuals seek a purpose in life. A challenge for boards is to ensure a company’s purpose is one that people relate to. It should engage, so that individual and corporate purpose are aligned. It should have meaning, not just for people in organisations, but for others as well. Hence, some leaders seek to turn their organisations into a cause that motivates others. Should the vision and purpose of an organisation be explicitly both entrepreneurial and responsible?

Entrepreneurship and falling barriers to enterprise and innovation allow many more people to contribute to the solution of social and technological issues, such as affordable ways of collecting and recycling the vast amounts of waste, particularly plastic debris, that float on the surface of the sea. Ocean currents both deposit waste on beaches and concentrate it at certain points. Some of the most imaginative responses and solutions have been from small teams and young entrepreneurs.

Further areas of blue and white collar work may be undertaken by robots and intelligent systems. People who might have become knowledge workers or professionals may recognise that such roles no longer offer the prospect of lifetime employment. More adventurous spirits among them may be attracted to entrepreneurship, a relatively creative and unstructured arena of activity in which they are less likely to be replaced by a machine or system.

Creative individuals and teams are often eager and willing to explore. Some are like early pioneers in the old west of the United States. While there is an open and moving frontier, they are ever ready to move on as others catch up. We need to make sure that in their search for security and greater predictability, those concerned with governance do not put down so many anchors in the form of structures and standards that more enterprising spirits are held back. This could result in companies falling behind in competitive races to innovate and differentiate.

Entrepreneurship and Family Businesses
Directors and managers may need to adjust their approaches to cope with a wider range of aspirations, perspectives and contributions as more dependent employees become entrepreneurial partners. With family companies, new governance structures may be required to reconcile family control with the desire of new venture teams for equity participation. In some fields one does not always need large resources to start up and growth can be rapid. Potential entrepreneurs who feel spurned or under-valued may be able to operate an e-businesses from home and quickly scale it up.

Family members may be attracted by the prospect of building their own business in areas that interest them and without becoming involved in family politics. While older generations might stress a sense of duty to a family business, their descendents may put a higher value on personal freedom and having more control over one’s life. The increasing life spans of people in developing countries is creating new options for how people can use a significantly larger number of active and healthy years. Fewer people may wish to devote the whole of a longer working life to a family company when they see their contemporaries changing direction as their interests evolve. Some might wish to dip in and out of family company roles at different points in their life.

The existence of associated income streams might enable family members to experience a range of options if a family company can become a valued enabler rather than a straight-jacket from which some might wish to escape. Certain individuals may wish to establish a new enterprise to reflect a personal interest, or found a lifestyle business, perhaps as a means of changing tack or adopting a different way of working. The agreement of other family members might be required to achieve the same result through a family business and this might not be forthcoming.

Entrepreneurship and Reinvention
Without entrepreneurship many existing companies may find it difficult to reinvent themselves to meet new challenges and opportunities. Without social entrepreneurship it might be difficult to transform public services to more flexible models. Many existing organisations need to find new ways of embracing entrepreneurship, whether encouraging and supporting internal intrapreneurs or collaborating with external entrepreneurs.

Many directors and boards should acknowledge their limitations, open up and recognize the importance of co-creation. Some are obstacles to progress and a source of delay as others wait for them to take decisions. New routes for raising and handling suggestions may be required. How directors undertake their roles may need to change. Perhaps they should set objectives and give others greater freedom to decide how, when, where and with whom to work and the means they use to achieve corporate aims. The emphasis may need to shift from compliance, standards and control to establishing the conditions in which enterprise and entrepreneurship can thrive.

Rather than contract out to a cheaper provider, directors could call for new ideas and better ways of achieving certain outcomes. Rather than itself deciding, a board might break a creativity logjam its own practices have built by ensuring that processes are in place for the objective and informed screening and evaluation of submitted ideas and the determination of the best way of taking them forward, whether internally or externally, and the commercial arrangements that should apply. Organisations that are transparent and fair are more likely to secure the trust of existing and potential entrepreneurs. They may also find it easier to attract entrepreneurs and retain an interest in entrepreneurial ventures. Entrepreneurship should not be viewed as a governance problem. It can be a source of creative and profitable solutions.

First Publication
Published in the July 2016 issue of Director Today (Vol. II, Issue VII, July, pp 23-25) a monthly journal published by India’s Institute of Directors (www.iodglobal.com). The citation is:
Coulson-Thomas, Colin (2016), Entrepreneurship and the Board: Questions for Directors, Director Today, Vol. II Issue VIl, July, pp 23-25

Author
Prof. Colin Coulson-Thomas holds a portfolio of board, academic and international roles, is IOD India’s Director-General, UK and Europe and Chancellor and a Professorial Fellow at the School for the Creative Arts. He has advised directors and boards in over 40 countries.

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