Part 1: The ideal Director for a medium sized business
- Posted by Gerhard Pramhas
- On 12. June 2018
For a few weeks now I’ve been talking with one of my customers about what the ideal Director for a medium sized business looks like. Are they a bit older or a bit younger? Should this kind of business actually have several directors? And do technical experts or business people make the best managers?
A problem shared is a problem halved or too many cooks spoil the broth?
As these two different sayings show, there is a range of possible approaches when it comes to the division of responsibilities. But I take a very clear view on this: for an SME, one director is always better than two or even several. Why? Because he or she is solely responsible and will therefore make clear decisions. There won’t be endless discussions with a business partner or about who is accountable for what. Who’s responsible for buying a new 1,000,000 euro production facility? When there’s only one director, the question doesn’t arise.
Of course, a single director will always be well advised to consult staff as s/he weighs up the pros and cons of issues, or to coordinate with any owners and keep them informed in advance about any investment decisions. But at the end of the day, the decision is made by one person, and that one person is responsible for the outcome, and will hopefully be appropriately remunerated.
Are there any times when it is advisable to have two or more directors? I don’t think so, because in terms of commercial law, all directors are always liable. Even where there is a sensible division of responsibilities, all directors have to know about all departments. The need to keep each other informed, to consult and come to a view, costs time and sacrifices speed. Even in the best case scenario, when directors understand each other perfectly, they are at a competitive disadvantage compared with a single director when it comes to the crucial issue of decision making.
Expert opinions help with difficult decisions
So does a sole director always have to take decisions on his or her own? Yes, basically, but of course s/he always has the option of getting views and seeking expertise from outside the business. I’d also recommend that sole directors, more than any other type, document and record all business processes and decisions in detail.