When you’re dealing with the day-to-day challenges of running your business, it can be difficult to keep the perspective you need to manage for the long term. That’s where a board of directors comes in. Formal or informal, these advisors can provide guidance to help your business be profitable and sustainable. They bring an objectivity to look at your business, industry and environment and help evaluate whether the people and strategies you’re putting in place are having the desired effect.
Most privately held companies don’t have a board of directors or even an informal board of advisors. This can put their leadership at a disadvantage. Sometimes the owner can get so close to the business that they focus on the day to day and lose sight of the key strategies and competitive landscape. Conversely, they can get so focused on the changing demands of the industry that they aren’t focused on the deliverables they need today.
Boards can be a powerful way to provide the fresh set of eyes that you need. You can seat a formal board of directors or an informal board of advisors.
When you create a formal board of directors, you are essentially paying someone to take on fiduciary responsibility for your company. The board is responsible to the shareholders to make sure the company is not being mismanaged and to help build shareholder value. Your expectation should be that they will reinforce and guide you in what is best for the shareholders in the short and long term, and hold you accountable to take action. If you are the only shareholder, an informal board of advisors may suit you better.
Informal advisory boards often are not paid. They are hand-selected people you like and respect, but there’s no expectation that you will necessarily take their advice and no real consequences if you don’t.
Yes, consequences. A formal board of directors can take action -- recommending changes in leadership, hiring external consultants, or driving changes in strategy or structure. They’re not going to get deeply involved in managing your business, but they can have a significant influence over what transpires at the top level. When it comes to succession, a board can also be that objective third party that pushes you to start planning for the future. They’re tuned in to whether you are potentially putting the business at risk by putting off the inevitable, and they may recommend or bring in the right resources if you won’t.
So how do you form a strong board of directors for your company? Start by identifying the skill sets that you would like to have represented on the board. It may be someone with financial skills who’s comfortable analyzing your P&L and balance sheet or playing an audit oversight role, someone who is retired from a career in your industry who brings deep industry knowledge, or someone with human resources or marketing expertise that bring valuable perspective on key issues or opportunities.
With skills identified, scan your environment for respected, credible leaders who are willing to put in the time to help your business be successful. Finally, take the time to bring them on board, orient them to your business, and share with them your expectations and how you expect them to contribute to your business success. One final note: If you are going to set up a formal board with fiduciary responsibilities, it might be wise to involve your attorney to make sure that you are setting up the appropriate structure, expectations and systems for success.
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