Three Hidden Roles
Every time a business man or woman sets up an incorporated business, they immediately take on three key roles, which are:
You may say, “So what?” But the fact is that most people don’t realise that they’ve assumed these three key roles, and as a result, the roles get left undone or are done incorrectly, which thas got major repercussions for the business.
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Three Hats to Wear
In this article, I’m going to explain what each of these roles means and the advantages it will bring to your business by knowing which hat to wear and when.
The Role of a Shareholder.
As soon as you invest any money in an incorporated business, you become a Shareholder. You own shares in this business, and the question you should be asking is, “What return is it going to give me on my investment?” If the answer is b none or very littleb , then you should take your money out and invest it elsewhere that will give you a fair return on your investment.
Now, when you put your money into a business you become a Shareholder. However, a shareholder does own the business or anything in it!!!
This comes as a surprise to many people. What you do own are shares in the company, and this gives you the right to vote at annual Shareholders meetings, and the right to elect Directors to the Board of Directors.
The Role of a Director
The next role that is taken on is DirectorDirectors. Directors do not run the business, and Directors do not own any part of the business. Directors (acting together as a b Boardb ) are there to provide what’s called Governance, which is to ensure that the business is run correctly by the Executives and meets all its legal and statutory obligations.
The Role of an Executive
Then, there’s the role of Executive, and it is the Executives that run the business and manage the business teams on a day-to-day basis.
Director Vs Executive
Now, there is confusion in many quarters about the difference between Directors and Executives.
I like to look use this sporting analogy to clarify the difference between these two roles.
The Directors are like the referees on a playing field. They know all the rules, and their job is to make sure that the players abide by the rules, but the never take part in the game. In fact they are not allowed to.
The Executives are the players on the field. They run the business, but they’re responsible for running the business in accordance with the rules. If they don’t, then the Directors, the referee, is there to call them to account and, they are not obeying the rules, they can send them off the pitch!
Who Owns What?
Now, earlier I said that Shareholders own nothing in the business. This is important, because some of our clients have had Shareholders, who, because they hold a shareholding in the company, believed that they owned a share of the company, and everything in it. They would even come and take things out of the warehouse.
There is a name for such an action, it is called theft! This is because an incorporated business is an entirely independent legal entity. Everything in the incorporated business belongs to the incorporated business and cannot be taken from it without the correct permissions from the Executives, who are responsible to the Board for protecting the assets of the business. Shareholders have no legal rights to these assets, no matter how big their shareholding!!!
I also said that Directors do not run the business. I have seen many businesses where Directors come in and start telling the staff what to do. This is so wrong! Directors who do this are overriding the executive (whose role it is to run the business), which is not good for the business and, all to often, causes chaos.
Directors have no right to tell any of the staff what to do because the only role that directors have the legal right to perform is to provide governance.
The roles that most people who start up businesses play in the businessB are as artisans and business experts.
It could be that you’ve set up a fitness company, you’ve incorporated and you are the main person there who’s doing all the fitness training.
That’s fine, but that’s your operational role within the business, but because you’ve incorporated, you’ve also got a responsibility to ensure that the business has someone to play the role of the CEO, Executives, etc. to be the CEO, B Someone to make sure that your business is on target and growing, and to look after the finances.
You’ve got a responsibility as a Director to make sure that your business is operating legallyB and you have a responsibility to yourself as a Shareholder to make sure that the business is giving you a fair return on investment. If it’s not, you need to take some action, as the value of your investment in the business might actually beB diminishing.
Do You Need to Hold Meetings?
All these roles must be carried out actively. You can’t just be an Executive by name, you really must hold management meetings, and these ought to be held at least once a week with your team.
Your team could be yourself and even some assistants, online assistants, or one or two other people, but you need to bring your team together (even if that is online) at least once a week to let them know what’s happening, where you’re going, what your strategy is, how you’re going to get there and their individual roles and responsibilities in getting you there.
As a Director, you ought to hold board meetings at least once a month. This is to make sure that the business and Executive are on track. This, is where you sit and ask yourselves different questions because you could in fact be playing two roles, you could be attending as the CEO, but you need to be a board member to hold the CEO to account.
If you’re not used to holding board meetings, it’s very useful to have an external advisor on your board. This is a role I play for many small to medium businesses, because they need help in knowing what the board can do and how the board can best hold the Executive to account and help the business to grow.
A good Board is really a great help in getting you accelerated to where you want to be and carrying your vision and your message to the world.
Shareholder meetings are held once a year. All the Shareholders are invited to attend, and they are chaired by the chairman of the board.
Here, the board answers to the Shareholders whose main question will be, “Are you giving us a return on our investment?” If they are not receiving a return on their investment, then they will want to know why and how the board is going to rectify this going forward.
A major consideration that many business people overlook is that they are playing many roles, but are they paying themselves for these roles?
As a Shareholder, you want a commercial return on the money you’ve invested into the business, and your business must be returning that to you.
As a Directors, you should be paying yourself Directors fees for the tasks that you carry out on behalf of the board.
As an Executive, you ought to be paying yourself a salary, or if you’re the CEO you should pay yourself a market salary for a CEO in a business of your type and size.
Then you’re the business expert, and as the business expert, you ought to be paying yourself a good commercial rate for what you are doing.
You should never forget that the incorporated business is not you. The money in it is not yours, so make sure you pay yourself. That’s the only way you can get the money out.
Remember, the business is there to serve you. It is a vehicle for paying you, but also a vehicle for carrying your message to the world, but the incorporated business is not you. Pay yourself, pay yourself, pay yourself.
Earlier I talked about governance, below is a definition which I hope will bring you clarity.
To summarise, when you start a business, you may initially find yourself wearing three different hats.
By knowing the differences and the responsibilities between the three, will bring you clarity and help take your business to the next level.
In the next article, I will be looking at Identity and Brand and what these mean to your business.
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