Three Roles Within A Business

I mentioned advisors and the board of directors in an earlier entry. There are three very distinct and separate roles within any business. Entrepreneurs and investors often get them quite confused. This cannot and will not happen within Parmasters Kitchener-Waterloo.

Investor – Contributes capital to the business. Owns a certain number of shares in the business. May realize a return on his/her investment via dividends (income) and/or an exit event (gain). Is entitled to:
- receive periodic updates on the state of the business (quarterly reports)
- receive annual updates on the state of the business
- attend the annual shareholder meeting
- vote his/her shares during the annual meeting as directors are elected, auditors are appointed and other business is conducted
- receive dividends as/if declared by the Board of Directors

Director – Provides guidance and governance as member of the Board. May or may not be an Investor. The two roles are completely separate. May be compensated with a mixture of salary, meeting pay, stock options and other incentives. Responsibilities include:
- hiring, mentoring, monitoring and, if necessary, firing senior management
- attend periodic (monthly or quarterly) Board meetings
- may also serve on one or more committees established by the Board
- review and approve budgets, plans, strategy and direction put forth by senior management
- and many other responsibilities, the list of which has grown significantly lately

Employee – Is employed by the business to fulfill a certain role within the business. Is compensated with a mixture of salary, commission and other incentives. May or may not be an Investor and/or a Director. All three roles are completely separate. Responsibilities include:
- fulfill the mandate of the position
- always conduct his/herself in a way that is beneficial to the business
- contribute in a very positive way

The point is, there are three separate and quite distinct roles within a business, and they must not be confused. Confusion often happens when an individual occupies more than one role.

- An Investor who also sits on the Board of Directors may try to dominate a Board meeting because he/she owns the majority of shares, when in fact all members of the Board, aside from the Chair, are equals around the table. One vote per Director. The Investor’s majority holding only counts once per year, when voted during the annual meeting.

- An Investor may also be an Employee. Perhaps an assistant manager in the case of Parmasters. I have seen cases where a dominant Investor does not take direction from his/her manager, because the Investor owns more shares than the manager. Once again, the majority holding counts at the annual meeting, not during the day-to-day operation of the business.

- A Director may visit the business and find something out of place. He/she may decide to direct staff to fix the problem. The Director is acting like an Employee. In fact, the Director should talk to senior management, who will then talk to other staff.

I believe the point is made. As I build our team of Investors, and establish the mechanisms and systems that will be used to facilitate communication and governance, I will be very cognizant of the many problems that can arise when people are not clear on their roles within the business.

I will ensure all are clear.