No company is too small to create a board of directors, and no company is too large and sophisticated that it cannot improve upon its board because directors have the potential to add significant value to management and the company in countless ways.
- Directors can give good advice insiders might not hear otherwise.
- Directors can be frank in a way employees won’t or can’t.
- Directors ask, “Why would you do that?”
- Directors help management network into important strategic resources such as partners, talent, capital, and markets.
- Directors bring new ideas.
- Directors double-check management’s plans and make them accountable.
- Directors check for compliance to ethics, laws, regulations, and just plain common sense and good judgment.
- Directors bring experience – they’ve been there, done that, and there’s no sense reinventing the wheel because that consumes time and money; and, there’s no sense in making mistakes because that’s painful.
- Directors pitch in and help during periods of rapid growth or crisis.
That said…excuses, excuses
There is no good argument (generally) against using a board of directors, yet owners and CEOs continue to cite the following excuses:
1. I don’t have enough time
There are certain high-leverage activities for CEOs and owners that they must put at the top of their priority list because even though these tasks do take valuable time to plan, prepare, and execute (e.g., financial audits; a strategic planning retreat; a performance review with a key employee; a board of directors meeting), these activities hold the potential to make a substantial positive impact for the business. Executing these high-leverage tasks as a business leader is simply something you have to do, so you make the time.
2. I can’t afford it
The cost and complexity of a board of directors scales to the size of the company. In a large or public company you can expect to attract sophisticated directors and they will expect a compensation package commensurate with company size and the commitment required.
But if you are a start-up company and only a few people are involved, you most likely won’t be attracting public company directors that expect big fees. But you can attract successful local people that were once in your shoes and know what it’s like to start and build a company and they’d be pleased to serve on your board as a way to give back – sometimes only for the price of a dinner and a few beers.
3. I don’t know anyone to ask
Many people say this initially but if they take a few minutes to reflect, they can always think of someone to invite to be a director. Also, they usually know someone who could be an intermediary to a director candidate. Good intermediaries can be a friend; a relative; a business colleague; your accountant, attorney, or banker; a professor; the Chamber of Commerce; a valued and trusted key supplier or client.
There are also organizations that foster better corporate governance and directorship that can match directors looking for board assignments with companies looking for good directors. For larger companies there are search firms that specialize in recruiting directors to large and public boards.
4. I don’t know what value they would bring – I know what to do
An executive with this kind of attitude most likely feels this way about many things, not just a board of directors. This kind of insulated, ivory-tower attitude only limits new opportunities for management and the company.
The objective evidence indicates that boards do provide real value to management and shareholders. However, it is true that boards also hold the potential to screw up royally and there are many examples of that from both for-profit and nonprofit boards, big to small. But that is not because the value proposition of a board is not valid, only that those particular boards were dysfunctional and acted irresponsibly. The overwhelming majority of boards do great work for their constituents.
5. I don’t want anybody to know what we’re doing
It’s a valid concern for many companies, but you cannot operate inside a top-security box forever. You need a few select trusted advisers that you can lean on and use as sounding boards so that your thinking and decision making does not become inbred and myopic. Directors can give you fresh and unbiased insights and they will respect and maintain the confidentiality of your plans and intellectual property.
6. I don’t know how to set up and manage a board
If you can create, manage, and grow a company, you can create and manage a board. Most attorneys are very helpful in making sure you cover the legal basics. Experienced directors themselves will be very helpful and patient as you proceed and learn on the job.
There’s a wealth of good books and training programs at your disposal. In essence, a board meeting is just like any other meeting where you set a prioritized agenda, meet, discuss, and get things done.
7. I don’t want any outsiders involved – this is a family business
It is a truism that there is family, and then there is everyone else. Experienced directors understand this as it relates to the dynamics of a family business board, and still you would be surprised how effective (and refreshing!) an outside director can be inside a tight-knit family business and board.
Family members are constrained in so many ways from being totally honest with each other. The outside director is unconstrained and sometimes the only one to tell it like it is. This can be an invaluable resource for a family business.
Just do it
If you’ve been dragging your feet to develop a board, just get on with it.
At the outset of building a board you will find that you can learn quickly with the help of the directors themselves. In a year’s time you will be the expert. You will find that your directors may refer you to other non-competitor CEOs who are looking for good board members. This is one of the primary ways the community of directors populate their ranks.
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When it comes to politicians, let the citizen be on their guard. Successful politicians are consummate performers possessing a good sense of humor, a flair for the dramatic, a winning smile, a talent for schmoozing, good timing and how to work the moment and the crowd, a gift for gab, and quick on their feet. With these talents, a politician can talk about anything from technical to non-technical; local to global; silly to important; a topic they know something about to a topic they know nothing about. They may not always know what is best, and they may not always be good decision-makers, and they may not always be truthful or trustworthy, but they ARE determined and clever survivors and will always tell a majority of the voters what they want to hear to sustain their position.
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I wanted to run something by you, which may or may not be something you want to do or you may not have the time. But I thought of you immediately and think that you are well suited to this task.
I have a very good long-term friend who recently asked for my help to identify someone who could facilitate a negotiation between my friend and another owner with the goal of merging their two respective businesses. They have in effect reached a “gentleman’s agreement” to merge the businesses after having teamed together on some research proposals for the last two years and been very successful doing so. They’ve been talking about this for the last two years. Now they just need a neutral facilitator who can help them close in on the best plan and legal framework for merging the two businesses into one, and that’s where you would come in.
I can give you a few specifics:
- These two businesses are both involved in highway pavement engineering and research.
- One is located in Portland Oregon; and the other is located in Tampa Florida.
- The two companies are of the same approximate size, each generating $800K – $1M per year in revenues and they are both profitable.
- The two owners feel that the companies complement each other perfectly.
- Both the owners and staffs are compatible and have already worked together.
- The two owners are certainly prepared to pay the going rate for professional services of this kind.
- I don’t think they are looking for any further capitalization, but I do know that they want to grow the merged business.
These two Owner/CEOs are looking for a trusted third-party to help them talk through the process and reach a consensus on the best way to merge their two companies from several perspectives: legal, operational, strategic, and financial/tax.
If you are willing to consider this, I would like to suggest your name because I believe you have the integrity, personality, insight, and overall business background to help them pull these pieces together and agree on a plan of action so that they can go to their respective attorneys and say, “Here’s what we want to do, draft an agreement that we can sign so we can get started.”
So, what do you think? I’ll give you a call and see if this is something you’d like to take on.