“It may be lonely at the top, but I don’t want to be second guessed all the time is why I don’t want a Board of Directors”. This is one of the refrains I have heard frequently from Leaders along with “how can anyone on a board know more than I do about this company and how can they really help this business?”. I have even heard these comments made by Leaders that have a board. So, what is the answer to this type of attitude? Being the Leader of a company in this day and age and running it by yourself is suicide. Find a partner, whether that is your spouse or a close confident and it’s just a lover’s leap. Same outcome. Making the right decisions at the right time require a group of people who have the experience to help a Leader in their decision-making process. Whether you call it an Advisory Board or a Board of Directors they should provide the same benefit to the Company Leader.
A board of directors is a requirement for public corporations but optional for privately held companies. Either way an effective board will help a company achieve its goals more effectively than a company without one. Effective boards meet often, strengthen the owner/Leader on strategic and managerial decisions, and challenge their thinking when it is needed. A good board of directors also provides access to a network of experts and resources that can help the company flourish.
Enough with the flowery stuff, why do I think a Board of Directors, or an Advisory Board is worth it today. First and foremost is risk management. In today’s environment risk management has become more of a Leaders job than ever before with higher liabilities and it requires broad experience and expertise that can’t be found in one or two individuals. This is especially true for an owner that carries too much baggage with the label on it of ‘it worked before’. A good Leader looks for advice from their field commanders that have the ‘on the ground’ experience too bounce their thinking off of before making final decisions. When I think of a BOD member, I picture a ‘grizzled veteran’ with the ‘been there done that’ tattooed on their forehead and the term veteran does not necessarily mean old in age. They are also an individual with the wisdom to ‘shut up and listen’ along with the willingness to learn. A good board is a ‘diverse’ board and diversity should be based on ‘life experiences and skill set not gender, color or other non-business characteristics or definitions. They should be able to move between operational and strategic discussions as necessitated by the issues at hand for the Leader.
Who shouldn’t be on your board? People that have a vested self-interest i.e., attorneys, accounting firms, etc. that provide services to the company or Leader. Board conflict of interest policies normally specify how Directors should avoid conflicts of interest. However, this narrow focus only scratches the surface, given the scope, responsibilities and dynamics of decision making in the boardroom. Service providers to the company have a built-in conflict of interest whether anyone wants to admit it or not. The real danger lies in the extent to which boards and Directors are unaware of the many subtle conflicts of interest that they are dealing with. Attorney’s and outside accountants may have experience and knowledge to add to a situation, but they don’t have the in the trenches experience to know what it is like personally. I have been a Director when companies have brought in venture capital money and the VC’s received board seats with the money which is common for any large investor. Personally, I think this is a deal with the Devil. A Directors first and foremost job is to look out for ALL shareholders. I have seen too many cases with VC’s looking after their interests first and at the determinant of the rest of shareholders.
Who assures that a Board of Directors is worth their seat at the table? The Leader of the Company! They have the final decision on member qualifications, new member orientation, and the focus and agenda for meetings. New member orientation is probably the most overlooked aspect of having a good board. I don’t care how experience new members are setting ground rules and expectations eliminate problems down the road. I was on an advisory board with another business owner who had a Board of Directors for his company. He quickly became frustrated as a member of the Advisory Board because the Leader was not implementing consensus decisions of the Board. He had to be reminded that a decisions by an advisory board doesn’t carry the same weight as those on a fiduciary board. It created friction between the board member and the Owner and impacted meetings negatively.
What doesn’t make an effective board meeting? Dog and pony shows. Please, YUK. As companies begin to grow too many times this is what meetings turn into. Leaders are responsible not only for meeting agendas but also providing the necessary information in advance for Directors to come prepared for meetings. If they don’t come prepared it’s the Leaders responsibility to hold Directors accountable when they don’t come prepared. If a Director is not willing to put in the time to be prepared for a meeting they shouldn’t be on the Board. Another ingredient for an effective board is a Leader that knows how to listen. I haven’t met a Leader that isn’t a good talker I just thought they should be as good a listener.
In the end if you don’t think you will get any value from outside directors you won’t. It’s a self-fulfilling prophecy. If you have outside directors and you are not receiving the value you expected look at yourself and how you constructed and set the environment for the board. If put in-place with the right people and correct process a Broad of Directors is worth its weight in silver……………. (you thought I was going to say gold).