How to Develop a Successful Board of Advisors (...And Why You Should!)
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How to Develop a Successful Board of Advisors (...and Why You Should!) By Er ic Graham In today’s rapidly changing and highly competitive markets, many privately held companies are cr eating outside advisory boards to give ow ners and CEOs fresh, knowledgeable advice. Even for small businesses, setting up an advisory board can give you a significant advantage over competitors that ar e rely ing solely on inter nal talent. An exper ienced and w ell-connected board of advis ors can help your business grow and prosper in w ays you’v e never imagined. What is a Board of Advisors? An advis ory board is an outside group that is infor mally organiz ed to prov ide business ow ners and cor porate leaders w ith support, advice and ass istance. While formal boar ds of dir ectors have legally defined res ponsibilities and fiduciary duties, advisory boar ds have no for mal pow er or binding legal authority. They serve at the pleasur e of the business ow ner or CEO. Be ne fits of an Advis ory Bo ar d There are several adv antages that companies w ith adv isory boar ds have over th eir c ompe t itio n. A bo ar d of f er s yo ur bus i nes s : An unbiased outside pers pective. Incr eased corporate accountability and discipline. Enhanced CEO and management effectiveness. Gr eater credibility w ith inv estors, vendors and customers . Help in avoiding costly mistakes. Rounding out s kills and ex per tis e lacking in current management team. A sounding board for evaluating new business ideas and opportunities. Enhanced community and public relations. Impr oved mar keting results and effectiv eness . Strategic planning ass istance and input. Centers of influenc e for netw orking intr oductions. Crisis and tr ans ition leadership in the event of the death or r esignation of the CEO. Help anticipating mar ket c hanges and tr ends. Steps to Creat ing an Effect ive Board of Advisors: Analyze the str ength and w eakness es of your curr ent management team. Look for critical areas of expertise and know ledge that y our company could use help w ith such as marketing, legal, finance, eCommerc e, and researc h and development or information technology. If your c ompany is planning on going public w ithin the next few years, seek out advisors w ho hav e succ essfully taken companies dow n that path. Set c lear , w ritten goals and objectives for y our board of advisors. Getting max imu m value from a board of adv isors begins w ith clear objectives and goals. Boar d members must know why they have been asked to serve and w hat is expected of them. Before establishing the board, the CEO and senior managers should sit dow n and ask some of the follow ing questions: 1. What are the main areas w e need advice and guidanc e in? 2. What specifically do we need the board me mbers to do for us? 3. Who are a few potential candidates for board membership? 4. How do w e avoid giving aw ay too much control to outs iders ? 5. What w ill be the pow ers and limitations of the board? 6. What w ill s etting up the boar d cost initially? Annually? Will it be w orth the cost? Determine the size and structure of your board. Advis ory boards range in siz e from tw o members to over thir ty. The right s ize depends on many factors, s uch as your c ompany’s siz e, complexity, stage of development and individual skills needed. My experience and research has found that for most small to mid-siz ed, grow ing companies or start-ups, a 5 to 7 member adv isory board is an ideal siz e. Smaller firms can start w ith just one or tw o members and add new members as they grow . Re cr uit ing Can did ate s Deter mining w hom you invite to join your board is one of the most cr itical decis ions in setting up a boar d of advisors . Often a business ow ner’s first instinct is to ask friends, family me mbers or pr ofessional advis ors to sit on their bo ar d. This is us u al ly a mi s ta ke. Un l es s yo ur f ri e nd or f ami ly me mb er is a recogniz ed authority in an area of expertis e lacking by your management team or a highly succ essful entrepr eneur, they ar e probably not the wisest choice. Another reason to avoid asking family or friends to join your board is lack of objectivity. Often advic e from a friend, family member or management insider is sugar coated to pr otect relationships. An outs ide advisor can giv e you a much more objective and hones t assessment of the situation. Using pr ofessional advisors s uch as your law yer, banker or accountant as board members has it’s ow n pitfalls. These advisors are alr eady w orking for you and may not be as objective as you need, due to having an interest in generating futur e business from your company . Some critical action steps for recruiting a dynamite board of advisors are: Develop a candidate profile. After y ou hav e determined the areas of expertise your company is in need of, create a profile of candidates that succ essfully fit these needs. Take car e to address know ledge and skills that y our company w ill need to meet pr ojected grow th and future challenges. Seek out experts. Search online and offline for experts and proven leaders that meet your candidate profiles. Contact them and begin discuss ions about poss ible board me mbers hip. Ask for recommendations. Solic it recommendations from the experts you speak w ith that cannot serve on your board, of collogues of theirs that they feel w ould be a good fit for your needs. Begin netw orking w ith your attorney, acc ountant and other profess ional advisors. Once you have succ essfully recruited an advis or, he or s he can often lead you to another good candidate. Find your candidates motivation. Most of your c andidates are not going to be motivated by money alone. In fact, if money is their primary reas on for joining your board, they may not be what you are looking for. The most effectiv e board members are motiv ated by the challenge and intellectual stimulation of building successful c ompanies. They serv e because they are alr eady high achievers and enjoy the challenge. Have var iety in your board. Try to include experts and successful entr epreneurs from several different disciplines. Often board me mbers w ho are successful mar keters, CEOs and business ow ners from different industries can bring a fresh perspective to your business. These individuals can often help you incor porate best practices from other industries, into your ow n industry, creating revolutionary changes and opportunities. Look for a prov en track record. Find the leaders in their field. The best board candidates are successful CEOs, bus iness ow ners, profess ionals, university professors and consultants w ho have achieved succ ess in their ow n businesses an d c ar eer s . Clearly communic ate your goals and objectiv es. Inves t time in talking to and meeting w ith potential members. Communic ate to them w hat your goals and objectives are. Let them know that you are not looking for “yes men” and that you w ant advis ors w ho w ill challenge you and hold y ou acc ountable for y our bus i nes s es gr ow th. Board Com pensation Board members expect and des erve to be compensated for their time, efforts and advice. Ty pical advisory board compens ation includes a stipend from $5,000 to $25,000 per member, per y ear. Some companies pay their board members per meeting, w ith payment ranging from $500 to $3,000 per meeting, w ith a monthly retainer of $500 to $2,500. Companies should also cover transportation, meals and lodging for members w hen attending meetings. Most successful boards also give or require members to buy stock or some form of equity in the company. This giv es the boar d me mbers equity partic ipation and a vested interest in the gr ow th of the company. Pitfalls to Avoid Some potential problem areas to avoid w hen setting up or w orking w ith your advis ory board are: Members miss ing meetings. Because board members are usually running successful businesses of their ow n, they may not alw ays be available for every meeting. How ever, board members should be made aw are that attendance of board meetings is important and expected. If a me mber is chronically absent, the value of their membership on the board should be review ed. Insecurity of senior managers. Some company insiders may feel intimidated or thr eatened by the inv olvement of outsiders. The CEO or ow ner must make every effort to communicate to his staff the benefits and impor tance of having a board of advisors. Incompatible pers onalities. This is a challenging situation, because most members of your boar d w ill be str ong w illed, achiever types, w ho have gotten w here they ar e by taking charge.