“Just run your business as if: 1) you own 100% of it; 2) it is the only asset in the world that you and your family have or will ever have; and 3) you can't sell or merge it for at least a century.”
You can’t sell or merge it for at least a century. Humans have a natural tendency to fall into short-termism, giving priority to the immediate or near future while sacrificing what is best for them in the long run. Just look around at the decisions most of us make daily, and short-termism is blatantly present.
I sit on the Board of Trustees at my kids’ non-profit school. Our purpose is to provide the best possible education to our student body today while ensuring the long-term viability of the school for decades to come. See, those two goals are not completely aligned. If we thought of today’s kids only, we would invest all the money we have, take out debt, and provide the best of everything for as long as we could.
If we only cared about the future, we would be saving as much as possible, doing the bare minimum reinvestment to maintain infrastructure, and skimping on teacher salaries. Neither of those two scenarios works, we need to strike a balance.
The Board of Trustees is necessary as it allows a small group, with shared collective interests, to form a consensus on what short and long-term goals should be. We then delegate the execution of those goals to the Head of School.
Sound familiar? The same happens at companies. The Board of Directors sets aside a space to think about the right balance between short and long-term, approves a vision, and then delegates its operation to the CEO.
If your company is not big enough to warrant a full Board of Directors, no problem. You can still set aside a time when you put on your “Director Hat” to think this vision through. Where you get out of the day-to-day operation and focus on striking the right balance between short-term and long-term goals.
This is also why a highly strategic CEO is so valuable and so rare. They do not suffer from Short-termism; they see the big picture and are capable of creating strategy, of thinking strategically. They in essence do the job of both the Board and the CEO, creating a vision and executing it.