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Posts Tagged ‘boards’

Board Mtg

A common misconception of business owners is that outside advisory boards are for larger companies – multi-million dollar international firms you read about in the news.  Smaller mom and pop shops, individual proprietors, or firms with less than $5 million in revenue would never have an outside advisory board. – Not true.

An outside advisory board consists of three or four individuals (outside of your business) that have the competencies and capabilities to help you be more successful.  It is that simple.

Most businesses are started by an individual, or several individuals, who invest their personal capital (time and money) in an idea.  In the beginning, they do everything, primarily because they simply don’t have the funds to hire employees.  If successful, they gradually develop into a more structured organization with numerous employees, customers, business relationships, and a defined capital base.  Along this journey, it becomes increasing difficult for the owners to break away from business operations to spend time thinking about the strategic perspective of the business.  They can’t work on the future because they stuck in the day-to-day.

This is where an outside advisory board can help a lot of companies.  Its primary purpose is to help/guide owners to spend time working on the future of their business.  In other words, planning for the future.  Of course, outside advisory boards also help owners work on the day-to-day stuff; but their greatest value is strategic.

There is a long list of reasons why companies say they have not considered outside advisory boards.  In many cases, the reasons are based on a lack of understanding of the role and responsibilities of outside advisors.  In other cases, the owner simply does not want outside advisors.  For companies that set up advisory boards, the board is one of the most valuable assets an owner can draw upon; regardless of the size of the business, its products or services, or its industry.  Clay Mathile, founder of Aileron and former owner of The Iams Company, has said that “if I had a popcorn stand on the corner of Third and Main in Dayton, I would have an outside board; it is the best investment you will ever make in your life.”  I know quite a few companies that have set up a Board of Advisors, and not a single one has regretted that decision.  Most wish they had done it sooner.

There are organizations that can help you develop a better understanding about the value of an outside advisory board.  Check local business listings, organizations, chambers, etc. to find out more.

On the other hand, I realize that outside advisory boards aren’t for many business owners.  If this is the case, find an strategic business expert that can help you develop and implement a “strategic perspective” of your business.  Like advisory boards, a strategic business expert is also a valuable asset business owners can draw upon to help them to be more successful.

Regardless, of setting up an outside advisory board or using an expert, you must take charge of your future; don’t leave it to chance.

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Board Mtg

I am often intrigued by the different perceptions business people have of what a board is and the role it plays in running a business. This is understandable because most people do not have the opportunity to interact with their company’s board. My intent in this posting is to provide a very basic (non-legal) description of outside boards and their role in family/private businesses.

In most cases, businesses go through several stages of development in establishing relationships with individuals that serve as outside advisors to the owners of the business. It starts with the new owner(s) occasionally sitting around a table with their family or partners talking about the most pressing issues facing the business. Perhaps they get together once a month in their home to focus on the issues. Overtime, as the business grows and the issues become more complex, other individuals, with whom the owners already have established relationships, are occasionally invited to participate in the meetings; e.g., accountants and lawyers. While these individuals are not part of the ownership structure, they are already closely tied to the internal perspective of the business and, therefore, are viewed more as insiders than outsiders.

As the business continues to grow and develop, the owners begin to realize that they could benefit from the advice of individuals that have additional competencies, capabilities, and experience in areas strategically important to the business; i.e., the future. In other words, they have to look outside the realm of their current business relationships.

The meetings have progressed from occasional ‘table’ meetings with family members or partners, to meetings that included trusted existing relationships, to meetings that included outside experts. It is important to note that at every stage in the transition the meetings were designed, structured and managed by the owners/partners so that they focused on the key issues facing the business. In the beginning, the focus was most often on tactical issues. As the business became established the focus shifted more to strategic issues because the owners became increasingly concerned about the future of the business. In other words, they moved their focus from working ‘in’ the business to working ‘on’ the business.

At this scale, the advisors are not looked upon as consultants. They are considered personal advisors to the owners of the business and, therefore, have a different relationship. The relationship is formalized by establishing a Board of Advisors or adding directors to a Board of Directors. A Board of Directors versus a Board of Advisors is probably the most confusing aspect of understanding boards. First, corporations are required by law to have a board of directors. In most small companies the owner/partners are listed in corporate documents as directors of the corporation. Directors are formally in charge of the corporation and, therefore, legally liable for the organization’s performance. Board meetings range from very informal once-a-year family/partners assemblies to formal regularly scheduled meetings. As it relates to outside advisors, owners can add advisors to their board of directors, in which case the outside advisors have the same fiduciary responsibilities as the other directors; they vote on issues, approve proposals, strategies, etc. Usually only larger well established companies add outside advisors to their board of directors. The directors are chosen/elected by the owners of the business. It is important to note that the ownership/control structure of the business does not change; the owners/partners do not lose control of their ownership.

Boards of Advisors consist of the owners/partners and outside advisors. The advisors do not have the formal requirements established for directors. They don’t vote; they provide advice to the owners/partners. The vast majority of companies that use outside advisors in a formal structure establish a Board of Advisors versus adding outside advisors to their Board of Directors. The primary reason is that both the company and individual advisors prefer the simplicity of a Board of Advisors versus the formality and compliance of a Board of Directors. Interestingly, these private companies range from very small firms to large multi-million dollar international businesses. They come in all sizes and shapes, and represent all industries.

There is a long list of reasons why companies say they have not established outside boards. In most cases the reasons are unfounded because they are based on a misconception of the role and responsibilities of outside advisors. In reality, outside advisors can be one of the most valuable resources for business owners/partners. Clay Mathile, founder of Aileron and former owner of The Iams Company, has said that “if I had a popcorn stand on the corner of Third and Main in Dayton, I would have an outside board. …it is the best investment you will ever make in your life.” I know quite a few companies that have set up a Board of Advisors, and not a single one has regretted that decision. Most wish they had done it sooner.

On a lighter note, I would like to share something that I heard years ago that has had a lasting impression on my perspective on boards. The use of the term “board” conjures up images of extremely important people and meetings; they are. However, the terms ‘board’ and ‘chairman of the board’ had a much different origin. – In the British colonies, as in Great Britain, individuals who had the responsibility to oversee the operations of a business would occasionally get together to discuss the business, just like I described above. In those days however, furniture was expensive and somewhat scarce, and few businesses had idle tables and chairs sitting around that could accommodate a group of individuals. Therefore, they would place a large board(s) between two sawhorses and sit on stools or boxes around the board; thus the name board meeting. The individual who ran the meeting was provided a chair and was known as chairman of the board. Your mental image of a board meeting has been changed forever.

I hope this simple description about boards gives you a better understanding of their role in business. If you are a business owner, consider adding outside advisors. If you are a seasoned executive, consider serving as an advisor to a family/private company. Two great resources that have outstanding board programs are Aileron, Dayton, OH and the Goering Center for Family and Private Business, University of Cincinnati, which is based on Aileron’s program.

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