Distributors need an advisory board (part 1)
Whether large or small, distributors can benefit greatly from having a board that brings different skill sets and a wide range of expertise and contacts. During the last decade the chemical distribution industry has seen significant growth. In fact, the chemical industry as a whole has developed and prospered.
Successful distributors have benefitted from a continued outsourcing trend and a growing preference of producers for a lower number of distribution partners, who can provide them with a pan-European presence and an in-depth coverage of the target industry segments they see as critical to their commercial success.
Many successful distributors have grown nicely and with Brenntag, DKSH, IMCD and Univar there are today a number of companies with a European presence listed on major stock exchanges around the world. These companies have governance structures, including a board of directors, to guide or supervise their management teams, as mandated by the relevant legal framework and the applicable stock market regulations and listing rules. For privately owned companies, the requirements in many jurisdictions are much less stringent.
But it is certainly worthwhile to ask whether such companies may not also benefit from a two-tier management structure.
Shareholder strategy drives purpose
The purpose of a having a board of directors even if not mandated by law (an advisory board), is dependent on the strategy of the ultimate owner(s) of the company.
In a family-owned company, a board can bring additional stability and drive evolutionary transformation, particularly when a generation change is planned for the not-so-distant future.
It can also provide a form of independent advice, in case of a divestment, a sale to a trade buyer or a private equity investor, or even during an initial public offering (IPO(.
For private equity owners, the value of the board can be around the facilitation of the underlying “buy & build” approach, truly trans formative moves or sometimes restructuring, always keeping in mind that the ultimate objective is to execute a successful exit strategy in a sale or an IPO, often within a pre-determined timeframe.
Strategic and controlling function
There are two dimensions in the role of a professional board. One is the formulation of the company’s strategy and, tightly related to this, the supervision of its systematic execution. It is about the decision on which markets the company wants to address, and how it wants to position itself in terms of cost position and value delivery.
The other one is the controlling dimension, where the board ensures and checks all aspects of corporate governance like legal compliance, risk management, adherence to accounting standards and reporting.