Every corporation has a board of directors, but not every board functions in the same manner. Board members of large publicly held companies are elected by the shareholders and are charged with representing their interests and overseeing management. In small privately held firms, the board is hand-picked by the sole stockholder (the business owner) usually from among management or family members, and it normally convenes only to transact regally required tasks, such as the annual meeting or the opening of a new company bank account.
Few entrepreneurs have attempted to broaden the business talents and scope of activities of their boards. They tend to be extremely self-reliant and hesitate to go outside when it comes to seeking advice. Indeed, this may not be necessary in the formative stages of a business.
But as a business develops, and such complex issues as plant expansion, acquisitions, or public offerings begin to surface, entrepreneurs may discover they need outside help in key areas. Specialized knowledge may be needed (or just broad-based business wisdom) with nobody at hand to provide it. It’s at this point that the entrepreneur may want to consider expanding the company’s board to make it less of a formality and more of a vehicle for business planning (in other words, a brain trust).
Of course, a creditable board cannot be created overnight. It will take the entrepreneur time to identify and recruit the appropriate persons and bring them up to speed on the company’s operations and business objectives. The more board members know, the better equipped they are to contribute.
Where do these contributors come from? They’re usually lurking in the entrepreneur’s own backyard, whether from rolls of business contacts, personal friendships, or acquaintances through social and religions organizations. Business owners should trust their instincts; if they’ve been active in the business community for any period of time, they should have little difficulty coming up with a solid menu of candidates. Though particular needs will vary, there are several rules of thumb of making an intelligent selection:
- Trust is the watchword. The business owner should invite only those with whom there is a relationship of mutual trust and loyalty and whose business acumen has been demonstrated.
- The candidate should possess a skill or knowledge which the entrepreneur cannot find readily through other sources, for example, marketing, production management, or access to new business contacts.
- The individual must be eager to serve, free of ethical or legal conflicts, and willing to see beyond the risk or liability side of board participation.
I believe, in the right setting, the idea of a “Board of Advisors” is undoubtedly a superior method of capturing sound business advisory talent. At the same time, the entrepreneur should expect the board to give its advice freely, but not for free. The board member’s eagerness to contribute (and the pride that person takes in serving) may not carry a specific price tag, but certainly a fair compensation is in order. Make it worth their time; but if they are doing it for money, you don’t want them.
Though the business owner is de facto both chairman of the board and reigning shareholder, the advisory panel must function as more than a rubber stamp. The board’s full support is certainly gratifying to the ego and is useful when it validates the entrepreneur’s own best instincts; on the other hand, if the advisors as a block oppose the chairman’s proposals, their viewpoint should probably carry the day. A carefully selected board, which boasts a good mix of talent and experience, will have a mind of its own and a voice worth listening to.
Not surprisingly, the opportunity may arise for the entrepreneur to serve on the boards of other businesses. The offer might well be worth considering, as board membership can pay a double dividend in new business contracts and fresh insights into how other businesses operate. It is also common for an entrepreneur to establish a mutual board membership with a key business contact, a supplier for example. This not only helps to cement a relationship, but can also enhance mutual understanding of needs and capabilities.
Reprinted with permission of the UMass Family Business Center, online at www.umass.edu/fambiz.