Bad corporate governance has received a lot of negative press lately, but unless you’re a Tyco shareholder, don’t let it get you down: a board of advisers or directors remains one of the most powerful weapons in your management arsenal. Surround yourself with the right people, and your company can quickly increase its credibility and gain access to potential customers, suppliers and investors. Most important, a board can bring fresh ideas, new perspectives and hard-won lessons to the management table-which is great for lone-wolf entrepreneurs who make decisions in a vacuum.
But as recent corporate scandals suggest, building and running a successful board takes more than convening a gaggle of yes men for monthly backslapping sessions. Selecting suitable advisers and structuring their efforts are keys to effective boarding.
1. Who should I choose?
The most effective boards comprise people with mission-critical experience and expertise that you and your senior executives lack today or will need more of in the future. So the first step in building a team of advisers is simply to catalogue those shortcomings and keep them in mind when developing your list of candidates. For example, if marketing experience is lacking, add an adviser with deep marketing roots to your wish list; if you’re hoping to raise venture capital in the next couple of years, target people with experience in raising private investment.
While potential members of your advisory council might have varied backgrounds, they must all “be able to act in the best interest of the company, with no vested interest in couching the truth,” says John Wilson, chairman of TEC Canada, a Calgary-based executive-networking organization. Competitors, suppliers and customers, therefore, don’t make for good board members.
Nor do family members. “You’re looking for people with independent minds that can ask tough questions,” says Tim Rowley, a professor of strategic management at the Rotman School of Management in Toronto. “By hiring friends, you usually decrease that ability.”
2. Where do I find candidates?
Chances are suitable candidates are within your personal and professional network. That said, don’t be afraid to aim high: many big-name entrepreneurs give their time to no-name companies if there’s a clear benefit to their participation. If you’re short of ideas, a professional search firm can help widen the net.
3. Why would anyone sit on my board?
Board members never work for free, and you wouldn’t want them to: a director that enjoys no reward for being on your board is unlikely to remain engaged for long. However, compensation comes in many forms.
Cash is one option. But Rowley says equity works better, as it can align the interests of board members and the company at large. If you don’t want to dilute your shareholdings or you want to avoid the hassle of distributing shares in a private company, then consider compensating directors in kind, suggests Dave Taylor, principal of Colorado-based Growing Ventures, a business advisory for startup companies.
“If you were a video rental firm, you could offer board members free rentals,” says Taylor. “It sounds a little trivial on the one hand, but on the other hand, it does show that you’re interested in their experience as customers and you’re giving them the chance to be full community members.”
In fact, the rewards don’t have to be tangible. “Many people are drawn to the vision that a CEO has for a company and the excitement of being involved with something that’s going somewhere”, says Wilson. “Plus, they get to tap into the intellectual capital of other CEOs.”
4. What should my board do?
To run a successful board meeting, you should:
- Give all advisers the opportunity to voice their concerns and opinions;
- Facilitate the free flow of information so that members are informed of corporate developments in a timely manner;
- Prevent CEOs and chairpeople from dominating the discussions.
Set and distribute an agenda ahead of time so that meetings stay focused and every necessary issue is addressed. Rowley recommends starting each board meeting with an overview of the company’s business strategy and its exposures to risk, including any changes that have occurred in these areas since the last board meeting. (A board isn’t helpful if its members don’t know the full scope of what’s going on in your company.) After that, anything goes: solving corporate challenges, addressing shareholder concerns and simply answering the CEO’s questions are all appropriate topics for discussion. Minutes should be taken so that no valuable information or ideas are lost.
5. When should my board meet?
Monthly to quarterly meetings are appropriate for most companies, but don’t let the time between meetings go to waste: advisers can contribute outside the boardroom, too. Give more enthusiastic members of the board special assignments, such as meeting with department heads to review business results and strategy in detail. Take them to see customers or your banker.
6. How do I keep board members on track?
Clearly outline your expectations of each board member in an adviser’s agreement. This will avoid surprises for your board members and will give you a document to work from should an adviser fail to perform his or her duties. Regardless, review the performance of each board member annually.
And when an adviser continues to underperform? It’s your duty to yourself and other directors to cut him loose. “The length of time a person should sit on a board should be equal to the amount of time they are making a significant contribution to that board,” says Wilson. “As long as ideas are kept fresh, and honesty and trust are present among members, there is no telling how long someone can sit on a board.”
Finally, show off your board: list directors’ names on your letterhead or website, and send board announcements to your investors and other stakeholders. If your board members have the power to increase the cachet of your company, then take every advantage you can.