Arguably the most important business relationship senior management will have is with the company's board of directors. This is because the board has a fiduciary duty to the shareholders, is usually charged with hiring the CEO and often is also involved in recruiting other senior executives. Closely held companies often do not have a board of directors, but the principles of managing the board relationship can still apply at a future point in time. This is because outside investors will frequently make the creation of a board - with some seats provided to them - a condition of investment. If your company ever raises outside investment capital, you should expect the formation of a board of directors to occur at that time.

So what steps should management take to ensure that this most critical of relationships stays on an even keel?

• Understand what the board's duties are and what management's responsibilities are.

When the board is formed (or perhaps before), management should sit down privately with outside counsel and have them detail exactly what the respective duties are, as this will define the relationship going forward. Understand that, fundamentally, the board has a duty to the shareholders and, by extension, the company - not management.

• Understand that the board's agenda may, on occasion, differ from management's agenda

I have seen this, particularly when institutional investors take a stake in a company being run by founders and are members of the newly created board of directors. For example, expectations of the timing of an exit (sale of the company) can be very different for each party. Sometimes, the board may wish to bring in additional or different management resources with a view to driving the company to the next level. They may have a very different view than management on these matters - and many others.

• Be adequately prepared for board meetings

Management must do its homework: selecting agenda items, preparing and assembling relevant (often financial) information around those agenda items. This information must be provided to the board, with sufficient time for them to review it prior to the meeting. If there are particularly difficult or controversial issues being addressed, it can be prudent to advise certain members of the board (the chairman, perhaps) ahead of time.

• Manage their expectations

Simply put: Management should do what it says it's going to do. That means setting realistic goals - whether it's revenue targets, hiring plans, capital raising or any other activity - and delivering on those goals. If it becomes clear that some portion of the year's goals will not be attained, then the board should be advised of that fact in a timely manner. No one likes a surprise - especially a negative one - at a board meeting.

A board of directors can add a huge amount of value to a company. By using common sense and taking some simple steps, management can ensure that the relationship with the board of directors is productive and creates meaningful value for shareholders.

Bruce Rector is president of The Rector Group, strategy consultants for small and midsized businesses. For his weekly Leadership Challenge, e-mail: brector@therectorgroup.com or visit www.therectorgroup.com.