Many entrepreneurs have limited skill sets and need help to take their businesses to the next level. One method of achieving this goal is by establishing a board of business advisors.
Two recent case studies demonstrate the roles advisory boards play in operating a family-owned business. The authors of those articles and the owners of the firms studied stress that any board you assemble should reflect the goals that you are trying to achieve. In addition, the board should provide your organization with the expertise to achieve those goals.
Here, I will summarize the benefits of having an advisory board, compensation strategies for board members, the composition of the board and how to orient new board members.
Benefits
The advisory board should be used after you sort out any family disputes within your business. Those have to be settled first.
A family-owned business can benefit in many ways by establishing an advisory board.
"No business is too small to benefit from having an advisory board" said Susan Ward in her article, "Harness the Power of an Advisory Board."
Board members bring an objective, outside perspective, providing expert insights and advice. Decision making is improved, and costly mistakes are avoided. I know of one local manufacturer whose board talked him out of an acquisition that would have been a bad move.
Board members are a source of information and can identify sources of capital needed to fund the business. The board keeps the company focused on the important issues and motivates the owners toward the agreed-upon goals. Board members also facilitate an ongoing dialogue with key constituencies and expand your network.
A local banker entered a new market and established an advisory board of local religious leaders, nonprofit executives and small business owners, who reflected his target market. This helped him zero in on the needs of this group of customers and provide the necessary services. His goal was to gather together the necessary spheres of influence needed to penetrate this new market.
The board provides guidance, but not governance, to the owners. Properly selected board members will be willing to challenge the chief executive officer and not accept the status quo.
"We hold the owner accountable (for the agreed upon goals)," said the board member of the manufacturing firm.
Compensation
The level of compensation varies and is dependent on the size of the company. Compensation ranges from $50 to $4,000 per meeting, and the frequency of half-day meetings can range from four to six times a year.
The local manufacturing firm was paying its board members $450, while the bank was paying $50 per meeting. Some companies offer stock options.
Some companies put their advisory board members on a retainer, which permits them to be on call whenever their services are needed.
In some instances, a fancy lunch or a special destination for the meeting can be considered sufficient compensation. All expenses connected with the meeting are reimbursed. In one case, donations were made to the board members’ favorite charities. The bank chairman mentioned that some of his board members donate their checks a minister on the board.
Board composition
"Picking the right advisors will help you establish credibility," Asheesh Advani says in his article, "Selecting an Advisory Board."
Chief executive officers should avoid placing personal friends on the board. Look for people who are flexible, tolerant and open to new ideas. You want to select people who will contribute expertise the company does not have.
Boards can be as small as two or three people or as large as 12 people. It depends on the size of the company and its needs.
Terms vary from 12 to 24 months.
Candidates are drawn from the local business community as in the bank example or referred by business contacts, such as recruiters, bankers or lawyers. In the case of the local manufacturing firm, the owner engaged an executive recruitment firm to find board members who had experience with an Employee Stock Option Plan (ESOP).
Board member orientation
There should be a formal orientation for each advisory board member. They need to understand the goals of the company and be focused on specific tasks.
The company needs to keep each member up to date on the progress of these tasks. Agendas should be prepared in advance and sent to the board members with supportive materials when necessary.
The level of information sharing varies by firm. Due to HIPPA and state regulations, the bank only shares limited amounts of information with its board. The local manufacturing firm shares the current marketing plan and the quarterly financial statements. Board members need to be focused on short-term tasks, six months to a year in duration, to be effective.
Conclusion
Once you establish that you need a board, you need to develop the board selection criteria. Who will strengthen your decision making process? Who will expand your network and increase your credibility in the marketplace? Who will aid in guiding your company to future successes?
Once these questions are answered, go out and select your board, but be prepared for the challenges and questions that they will present to you.
Cary Silverstein, MBA, is the president and CEO of Fox Point-based Strategic Management Associates LLC. He can be reached at (414) 352-5140.
May 27, 2005, Small Business Times, Milwaukee, WI
