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How To Get the Most from a Board of Advisers
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Business New Haven
11/12/2001
By: Nancy Barnes
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From a small, start-up operation to the moment when a private company goes public, it's difficult for business owners to manage a closely held company well in every single area. Smart business owners can often benefit from a board of advisers to help them manage a business adroitly.
In truth, a privately or closely held business can be more difficult to manage than a public one. A tumult of emotions often comes into play, because most private businesses are entirely or substantially owned by families. Strained relations among family members or friends can lead to poor decisions that result in financial loss.
A board of advisers, which has no legal authority, can benefit a private company by providing an independent perspective. It can also:
• Offer a wealth of experience
• Provide contacts among other business professionals
• Bring a questioning attitude to the table
• Supplement management's skills with expertise in specific areas, such as organizational behavior.
A board of advisers can be especially helpful in encouraging strategic thinking. It can encourage owners to take advantage of a new market or urge them to go national - or even international - with their products. It can positively influence an organization's ability to change.
The regularly structured meetings that the very existence of a board provokes can force the owners of a private business to focus on important issues and reach timely decisions. Even the process of preparing for board meetings can help management to brush up on its competition. A board can also identify the threats and opportunities faced by a business that its owners, oblivious to the forest because of the proverbial trees, may have overlooked.
Too often business owners - especially if they are founders - do not put a succession plan in place. That's where the presence of a board can safeguard the future of a closely held firm. “Who is the professional most qualified to succeed?” is the question a board can ask, rather than allow the wrong person to succeed for the wrong reasons.
Not that family ties within a business need prevent a qualified family member from rising to the top. Consider the late October upheaval at the Ford Motor Co. Although it is publicly owned, the Ford family still controls 40 percent of the voting stock. Recent company travails, such as the disastrous association between the company and Firestone tires, resulted in the dramatic ascension of William Clay Ford Jr. to the position of chief executive officer late last month.
One reason for his selection was the company's belief that a CEO from the Ford family would help the automotive giant to regain consumer trust.
So who should serve on a board that is, essentially, a highly skilled yet diversified support group? Other successful business owners are often good candidates for advisers. So are business associates such as accountants or lawyers whom the business owner already knows and who, while not fully employed by the company, have a stake in its success.
If a business owner's personal network of associates does not supply the candidates for a board that the owner is seeking, management can simply identify persons within local companies whose expertise it values and ask them to serve.
Above all, it is important to balance the sets of skills that potential advisers possess. For instance, if the business is about to enter the field of technology, it may be necessary to find a person who understands technology broadly. A firm whose owners are highly creative or concept-oriented may badly need a person with sound analytical skills. At best, a board resembles a broad market, with each member's skills occupying a complementary niche.
On matters of personality, a board needs careful tending. A disruptive personality, whatever his level of expertise, may be a counterproductive force.
And a business owner who is concerned about sharing sensitive information with company outsiders may take comfort from knowing that it's appropriate to ask advisers to sign confidentiality agreements.
Once a board has been assembled, what does a business owner do? He should introduce the new advisers properly, giving not only their professional backgrounds but also their personal accomplishments and interests. The owner should make sure the board knows the history of the company: when it started, the industry in which it operates and the firms' financial mission statement. At most, a board should meet on a quarterly basis. More frequent meetings are typically less effective.
Boards of advisers are paid by the meeting. While some advisers assemble at no charge, other board members are paid up to $10,000 per meeting. The standard fee is $1,500 per meeting-day. And if an owner finds these fees high, he should think of the sweat equity he has put into his business over the years. Its well-being is, as the commercial says, priceless.
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