The Question is Not, Should I have an outside board... But how can I survive without one?
by Rob C. Geyer, CPA.
You have spent most of your working years developing the business. It's grown, you're doing well and proud of your accomplishments. You made it happen by calling the shots and it's worked.
The kids are in the business how. You are actually spending more time with them than when they were growing up. However, you're not quite as comfortable running the business as you used to be. Customers are more demanding, competition is fierce and it's hard to get that dollar to the bottom line.
Your kids constantly come up with new ideas and new ways of doing things but they call for too much change. You like the fight, you like to win, but you don't have quite the energy you used to have.
Does this sound familiar? Business today is more complicated than it has ever been and you can't always afford to pay what it takes to hire the best and the brightest. You need help from a person (or persons) who knows you, knows the family and understands the business, someone who can listen, someone who is willing to challenge your thinking, and has ideas of their own.
Where can you find people like that...that don't cost a fortune? How about utilizing a board of directors or advisors? "But", you say, "I never had to report to anyone. Why would I want to do that now?" O.K., you're not sure but it does sound promising. But what would the board do? How would you start one? How much should you pay for their services? Can you change and feel comfortable with an independent board?
An Independent Board Works for YouOfficially, an outside board, whether a board of directors or a board of advisors, acts in the best interest of the shareholders. Since you and the family are the shareholders, the board works for you, looking out for your best interest. The board's focus depends on you and your company's needs, strengths and challenges. Some of the things you can use your board for are as follows:
To understand and protect the shareholders' heritage and values To provide diversity of thought and creativity To test strategic thinking and a long-term view To challenge performance and hold the company accountable for improvement and results To act as a counselor and mentor to key management and family members in the business To assist with leadership development To provide credibility to customers, venders, lenders and capital markets To provide a calming and balancing influence on family tensions To provide for orderly succession To provide input and experience for specific business challenges such as managing growth, buying or selling a business, developing new markets and hiring experienced management.Identify purpose and Traits of Your BoardHow do you get started? You start by developing a list of your greatest needs and concerns. Use the list from above as a start but personalize it. Be honest about your family and business needs.
What advice do you need? What are your strengths and weaknesses? Is it industry specific, financial, strategic, management development?
Once you identify these needs and desires, you can develop a list of attributes you would like your board members to have. Since the board works for you and the other shareholders, they must share the same values and beliefs and be able to work well with your management team and the other board members.
Usually, you don't ask individuals that you are paying for advice to be on the board, such as accountants, consultants and attorneys. They can be an invaluable resource for the board but you are already paying for their advice.
You have identified the purpose of your board and the traits of the board members. Now, how do you find them?
First, identify as many potentially qualified people as you can. Ask you advisers and other business acquaintances. Make a long list with a lot of variety. In the beginning don't worry too much about individual strengths or weaknesses.
Second, after you have the list start comparing individual traits to your needs. Not every person has to have all the characteristics you desire. Just make sure you get the traits you are looking for in the entire board.
How many do you need and how much should you pay? Typically, a board of 5 to 7 is all you need. Outside members should number about 3 to 5. And if you board is imp;important to you, they should be worth what you are. Typically, the hourly rate of your top executive is comparable to a board member's hourly compensation. This rate is usually converted to an annual retainer and a fee per meeting.
Does all this sound daunting? The members of PKF Crowe's Family and Owner Managed Business Team have extensive experience in helping develop outside boards and can help if you need it.
In a recent situation, the team helped the CEO of a large family business identify his company's needs, the purpose of the board and the attributes of potential board members. The team then met with key members of the business community to expand the list of potential board members started by the CEO of the company, and narrowed the list to those that best fit. An interview process then ensured that family and company values are shared and that the board candidates can work well with the management team.
The question in today's business environment is not, should you have an outside board, but can you get along without one?