Entrepreneurs or
Family
Businesses with entrepreneurs should consider using Boards of Advisors
or Advisory Boards to help grow the business. There are four steps in
developing
an effective Advisory Board using outside people. This is not a simple
and easy process unless you have carefully executed these four steps.
1)
Identify the
reasons WHY you want to spend more money to hear other people's point
of
view that may be in conflict with yours.
2) Identify
those people
that best meet your expectations and intentions.
3) Develop
Rules of Governance
that best fit the culture and style your management team responds
effectively
to.
4) Begin using
the Board,
and let it evolve over time.
I have found that
there
are many reasons a company owner, president or Family Council desires
an
advisory Board. They include:
1) the need to integrate outside
opinion
and viewpoints to counterbalance internal viewpoints,
2) Create a
succession
plan that allows for the selection of the "Heir Apparent," to avoid the
conflicts that arise when one child is "favored" over others,
3) to
provide
expertise and experience lacking in the organization,
4) To provide a
network
of new opportunities using the board members contacts and influences,
5)
To provide sound management practices in order to reach the next level
of professionalism, or
6) To prepare the management team for dealing
with
outside directors, if the company wants to plan an IPO and needs the
SEC
experience.
Of course, the list could go on, but the above 6 are the
most
common I find.
Selecting Advisory
Board Members
is probably the most difficult process of the 4 steps. It requires a
tremendous
amount of time and research to identify, interview, and select these
key
individuals. David Coulter's (CEO of BankAmerica Corp) Top Ten List of
what makes a 'good' director/Advisor:
1) Put the Business or
Shareholders
FIRST, meaning that personal agendas of the CEO should be challenged if
it appears the direction of the agenda doesn't benefit the company; or
shareholder FIRST;
2) Have INTEGRITY to avoid conflicts of interest,
while
providing rigorous, factual analysis and candor to management and the
CEO;
3) Must be COMMITTED, both emotionally and mentally, have a personal
concern
for the company, by staying in touch with the CEO and or management on
a regular basis, beyond just the quarterly meetings, as well as making
personal visits to company owned facilities as well as competitors,
when
available;
4) Must be AVAILABLE to contribute knowledge and expertise
as
well as time;
5) To Bring CONSTRUCTIVE alternatives to a discussion and
reach the most effective solutions;
6) Must have a STRATEGIC POINT OF
VIEW,
and not get caught up in the operational details, which is a management
responsibility;
7) a Director/Advisor must be INDEPENDENT, but not
eccentric,
which will allow for dissent but not "nay saying."
8) The membership
should
be DIVERSE, representing a variety of industries, experiences, and
knowledge
that will best keep the company competitive;
9) The Advisor should be
SMART,
meaning that the advisor may not understand the intricacies of
metallurgy
and EMI's but should be able to see that investing in a opportunity
makes
business and economic sense, and articulate both the good and bad
issues;
and
10) the Advisor should be a TEAM PLAYER, having both a collegial
disposition
and sense of humor as well as respect for each other.
It should be
noted that some
studies have shown that having your CPA, Attorney, Best Friend, Long
Time
Consultant, or Distant Relative may NOT be the BEST CHOICE, as these
individuals
in the LONG RUN may have conflicts of interest. However, I have found
them to be great early stage advisory board members due to the full
knowledge of the CEO, that will assist the transition to an full
governing board with outsiders. In the later stages of an
advisory
board, where I have sat on advisory boards of former clients rolling
into a full governance board,
I have either refused major consulting engagements or resigned. I
always
ask to resign off a board after 5 or so years as directors can get
"stale" or do
not bring any new ideas or concepts to the table. In early stages of an
advisory board, I always recommend the firm's CPA, attorney or Long
term
friend. I do this if there needs to be a balance to the NEW
members
who may not know the company, industry or CEO well. These close
advisors
would provide meaningful insights to the new members who would not have
the historical perspectives they would need to have to be a good board
member. Once that knowledge has been transferred, it is best these
close
friends retire or resign. You can call your closest advisors and ask
THEM
who they would recommend to join your board. The National Association
of
Corporate Directors (1707 L St NW, Suite 560,Washington DC 20036, (202)
775-0509 has a referral system for those who desire a less personal
approach
to the selection process. There are nationally recognized Head Hunters
who do nothing but attract strong director candidates. Your Banker,
Attorney
or CPA could also recommend others.
The Rules of
Governance for
an Advisory Board, not a formal Board of Directors, relates directly to
purpose of the Board itself. Provided there are no crisis issues to
deal
with, an advisory board should follow the following
recommendations:
1) Have
all meetings
prepared well in advance, with agendas, management reports, financial
reports,
and key issues to be discussed;
2)
Advisor/Directors should
have read the materials, discussing any issues BEFORE the meeting with
the CEO, and be prepared to openly discuss those issues at the
meeting;
3) Advisors should
be compensated
for their VALUABLE time, that means a check should be printed and given
to the member BEFORE he or she leaves the meeting. ( I have found that
$1,500 per day is reasonable) Travel expenses and other related costs
should
be reimbursed or paid for in advance;
4) Schedule the
Quarterly
Meetings IN ADVANCE, to allow the members to schedule their time around
your meetings, it helps them to be available;
5) When a
Advisor/Director
misses more than 2 meetings a year, make it automatic that they offer
their
resignation and help the CEO find a replacement;
6) Recognize that
membership
is not "forever" and term limits should be stated. If you have ever
been
on a bank board where little is challenged or addressed, as the members
have been there too long and do not like others who make waves, you
know
what I am talking about;
7)
Advisor/Directors should
have access to Key Managers, to talk with and ask questions to. I found
this point to be most important in my getting insights to some of the
strategic
issues facing the organization. There is no need to go very far down
the
Org Chart, but it should be available to discuss issues with them to
gain
a different perspective of issues beyond what is presented at each
meeting.
8) Treat the
members with
respect: start meetings on time, and end them reasonably on time. Have
5-10 minute breaks every 90-120 minutes, to catch a breath, attend to
personal
needs, or make phone calls. Feeding a decent meal, breakfast, lunch or
dinner does not require expensive tastes, but allowing for personal
orders
or preferences is always appreciated.
9) If criticism is
to be
directed towards the CEO, it is best delivered in private, not in a
board
room. Not only does it create awkward conditions for the CEO, but to
the
remaining members who may not agree with you. If an Advisor/Director
has
such a deep criticism for a CEO's behavior, agenda or Ethics, and the
member
has made efforts to articulate these issues for corrective action, and
they still persist, my suggestion is that the member resign from the
board.
That member is either not in sync with the other members or is not
effective
in developing solutions to problems he or she sees.
10) Once you
select the
members, get it started slow and easy. I recommend that the members
meet
with the CEO in the First meeting all by themselves. This helps the
newly
formed board get a feel for each other, ask the "dumb" questions, and
develop
the chemistry needed to become more effective.
As time progresses,
the
CEO should invite key managers, both family and non family, to the
meetings.
These meetings will then evolve into quarterly strategy sessions
whereby
each manager gains higher level perspectives and seasoned knowledge. It
is this transference on knowledge and discussion that the management
team
learns to problem solve more effectively. This forum also helps
facilitate
those difficult decisions that the CEO would normally decide, but
politically
would be damaging to his or her relationships within the family or
organization.
When an outside, non family manager is selected to become the next CEO
over less qualified family members, it can be smoothly developed
through
the use of a board. In various presentations and writings, Ivan
Lansberg,
a nationally known author and academic of Family Business issues, has
presented
or written numerous testimonies relating to the importance of Boards.
In
closing this article, I would like to share a comment he shared to
others.
Dr. Lansberg said, in an interview for a newsletter: that he could
statistically
show that having a board was much more favorable to the owners of the
company
than by not having one. He closed his remarks by saying "Any Family
Business
would be foolish or stupid to operate in a competitive marketplace
without
a board."
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