Part 1: Your not-so-secret weapon | Part 2: BYOB(build your own board) | Part 3: High-octane advice | Part 4: Enriching advice | Board models | What CEOs get out of advisory boards
Advisory boards work. In Part 1 of this series, we showed how setting up advisory boards can help private businesses create new ideas, make better decisions and improve company performance. If your firm is growth-oriented or constantly encountering new challenges, you need an advisory team of peers and professionals to watch your back and help you move forward. My own experience as founder and CEO of College Pro Painters, at which I created an advisory board, convinced me of their enormous benefits.
But how do you set up a board that’s motivated and effective? Most entrepreneurs don’t know where to begin. As Jacob Aharon, president and CEO of Toronto-based Plastisoft Corp., told me: “I didn’t know how to approach the right people and interest them in being a board member.”
Fellow PROFIT columnist and entrepreneurship expert Rick Spence and I contacted numerous CEOs across Canada to find out how they tap advisors’ expertise and goodwill. We learned that there are many ways to build a board, and that entrepreneurs tend to structure them based more on their own needs and instincts than on any formal process. Still, we’ve identified a number of best practices for those serious about forming a team of seasoned advisors.
Step 1: Get help
You don’t have to do this alone. Connie Clerici, founder and CEO of Mississauga, Ont.-based Closing the Gap Healthcare Group, used a small Toronto-based consultancy, Strategic Leverage Partners Inc., that specializes in board effectiveness. Jeff Lem, president of Qdata Inc. in Markham, Ont., hired a trusted advisor to help devise his board’s terms of reference and select its members. And Kevin Brady, CEO of Whitby, Ont.-based The Brady Group Inc., retained a former CEO, who scouted out potential advisors for Brady to interview.
Outsiders bring experience (they know the right people and understand how boards work) and focus. They offer busy business owners a “champion” who can make this Priority 1. Having helped several CEOs set up advisory boards, I know that most entrepreneurs will never find the free time to build one. Delegate this task or it’ll never get done.
Your champion can help you through the next four steps.
Step 2: Decide why you really want your board
Do you want one purely for the advice its members can offer? Or are you after the discipline and focus that comes from being accountable to a peer group that meets regularly? (See “The kind of board that’s right for you,”.) A host of other decisions will flow from this choice.
In conducting this research, we discovered that with advisory boards, you can have your cake and eat it, too. A well-structured board can provide both accountability and supportive advice. In fact, this is one area in which it can be superior to a conventional board of directors. Most public boards grapple mainly with governance issues, so they don’t focus on operations or offer helpful advice on who to hire or how to crack new markets. Directors also have the right, and fiduciary duty, to replace a CEO who’s not up to the job — which could dampen any entrepreneur’s desire to share their fears and problems.
There’s no such reluctance with an advisory board, which serves at the CEO’s behest and has no fiduciary duty.
Step 3: Draw a blueprint of your board
Paper clarifies. Grab one or two sheets of paper (keep it simple!) and set out your roles and expectations right at the start. Examples:
>Purpose of the board: Operating advice? Strategic leadership? Accountability? Governance? Know from the start what you’re looking for.
>Success measures: How will you tell if your board is working? Establish specific objectives, for example, projects you want help with, such as financing, HR or product development, or a performance target, such as improved sales or profitability. I suggest giving your board at least two years to prove itself.
>Size: The successful boards we studied ranged from two directors to eight, but most were four to six.
>Membership: What qualities, skills and experiences do you want? Why do you want them? Do they fit with your answers in Step 2? Hint: It’s helpful at this point to start compiling a long list of people who you think might fit these attributes. That will make the process more concrete.
>Compensation: This might take the form of retainers, meeting fees, shares or stock options — or a mix of them. A 2003 study by the Queen’s School of Business in Kingston, Ont., found an average per-meeting fee of $1,395. Pay your advisors real money or shares, and they’ll naturally feel more motivated to read all your documents and actively look for ways to help the firm.
If you want your advisors to focus at least some of their “driving time” on you, be prepared to pay a retainer that goes beyond meeting fees. This helps when you start calling individual board members for advice between meetings.
>Meetings: Some boards meet monthly, others twice yearly. Some never meet, and are really just loose coalitions of contacts for CEOs who want to tap them for advice without setting up a formal body. Clearly, one size doesn’t fit all. In our research, however, we found that regular, quarterly meetings are the most common among successful boards — with dates set out well in advance so everyone can make it.
Who should chair? The Queen’s study identifies the chair as key to a board’s success. Some CEOs are reluctant to hand off authority, but I believe the more power you share, the better off you’ll be. I recommend appointing an outsider, perhaps the champion who helped set up the board, as chair. That person can prod you to prepare properly for meetings, which is the only way you’ll get full benefit from them. “You have to put work into your meetings up front,” says Lance Laking, president and CEO of Ottawa-based BTI Photonic Systems Inc. “You have to make a concrete effort to carve out some time and make it a priority.”
Chairs must also ensure meetings are productive. This includes preparing and distributing agendas and prep material, running effective meetings and knowing when to encourage discussion and when to shut it down. The chair can also follow up with the CEO between meetings, and generally ensure that the board is meeting its mandate.
>Confidentiality: To ensure a free exchange of ideas, board mandates commonly include confidentiality and non-compete clauses.
>Liability: Unlike a “regular” board of directors, advisory boards typically don’t have significant liabilities, such as responsibility for environmental damage or ensuring remittance of payroll deductions. To preserve this status, your board should make only recommendations — never decisions. The management must have absolute discretion over which advice or recommendations to take.
Step 4: Populate your board
By now you should have started your candidate list. Key criteria: each candidate should fit at least one of your desired skill/experience requirements, you should be able to build trust with them and they should be people you enjoy being with.
“Get people who are team members, people who are likely to get your culture,” says Tim Moore, chair and CEO of Premiere Executive Suites in Halifax. “They have to fit in — they’re going to meet your company and staff.” Anton Rabie, president and co-CEO of Toronto-based toymaker Spin Master Ltd., adds one more qualification: they should be able to “bring their passion to my business.”
Diversity is good; old boys’ clubs are not. Look for accomplished people with a wide variety of industry experience. Avoid “yes” people — keep telling yourself that debate is healthy. And don’t just fill your board with hard-nosed business builders like you, advises Andrew Scott, CEO of Digital Payment Technologies Corp. in Burnaby, B.C. “Many entrepreneurs engage on their board other entrepreneurs who’ve been there and done that, their way — and don’t have well-rounded backgrounds to do things in other ways. They don’t see alternatives.”
Cull your long list to one or two people for each spot, then interview each other. Both sides need to clarify roles and expectations up front to ensure they’re on the same page. (Your written mandate will help immensely.)
Step 5: Hold your board’s first meeting
Don’t expect too much from your first few meetings; give your board time to jell and get to know your business. If marketing executive John Armstrong, president of Toronto-based Armstrong Partnership LP, could start over, he says he’d do a better job of educating the board up front. He would take more time for that first meeting and provide a thorough briefing on the company and its prospects. Having senior managers introduce their areas is also helpful, for both sides; simply preparing these presentations could help your managers clarify things. Encourage your advisors to ask dumb questions, and create “soft time,” such as a dinner before or after the meeting, to begin the crucial task of building trust relationships.
Finally, be prepared to listen. Encourage questions and debate, urges Digital Payment’s Scott, and take your advisors’ feedback seriously: “If they’re recommending you do something different, either you don’t have the right board members, or you haven’t explained it properly or you’re going the wrong way.”
Be warned: entrepreneurs who have built advisory boards say they become addictive. The more they put into it, the more they get out of it — and the more they want from it in future.