The Value Of An Outside Board

The Value Of An Outside Board

Sometimes another set of eyes can make all the difference.

Small businesses are a phenomenal entity. Often started in a garage or at a kitchen table, the sheer energy of the small business entrepreneur “wills” their company to success. Hard work, long hours and steep odds are the norm for the small business owner. Over time, the entrepreneur goes to the well daily to keep their vision and dream alive. It is often “my way or the highway” with the owner but when does this potentially myopic approach run its course? Would it be advantageous for the owner to have “another set of eyes” look at their strategic plan?

At that moment, the small business may want to consider a Board. A Board of Directors (or Advisors) is an elected group of people that oversee and advise a business and their operation – in a sense, another set of eyes. In most small businesses, the “Board” are the same people that run the operations – these are in place simply to address issues required by law. The value of an outside Board comes from combining the working knowledge of the entrepreneur with the advisory knowledge of key Board members. This combination can enhance both the growth of the company as well as alternative perspectives to tackling issues at hand.

I have had the privilege of serving on six, for-profit boards in my career and relished the experience. Being a part of the Board, allows members to contribute their vast array of business knowledge to a company that may not have been exposed to different business practices. That being said, here are some key attributes of a Board and its Directors:

Board Of Directors Duties: Boards represent the interests of the company and the shareholders, not members of the Board. The Directors are selected and retained to make certain that effective management is in place and to provide ongoing monitoring of the overall management performance. While the Board generally does not get directly involved in operational or personnel decisions in a broad sense, it does select and evaluate the effectiveness of the CEO and his or her potential successors.

Private Company Boards: Most Boards are made up principally of independent outside directors that each have expertise in one or all of the critical functions of the company. It is expected that Board members will become knowledgeable about both the company and its operation. Directors typically are knowledgeable about the markets and channels served by the company and have the time required to invest in the success of the organization. In some cases, key Board members may simply have a core competency that is lacking at the organization, i.e. project management. In addition, a small business should seek Board members that have a strong business network as well as strong analytical and financial skills.

Finding Independent Outside Directors: So, where does an entrepreneur find their Board of Directors? In my case, I would find my Board members through networking, predominantly through my LinkedIn connections. Other methods would be to seek the recommendations from bankers, lawyers, accountants, community leaders and friends. A small business owner may also look for recommendations from other company directors, professional director search firms or from the internal executive management team. No matter where the pool of potential Board members comes from, the key is to seek Directors that have similar business experience and product knowledge.

Education Of Directors: Once the Directors have been elected to the Board, it is imperative to bring them all up to speed on the company. Included in a presentation to the Board should be a thorough history of the company including both the products that are produced as well as the overriding operating philosophies. Next, the company should communicate which markets it serves – both geographically as well as the vertical channels it targets. An overview of the company’s financials should include a look back (5 years) and its forward-projecting operating Performa (at least 3 years). Lastly, the current fiscal calendar budget and strategic plan should be discussed.

The Role Of Board: A Board’s job is governance, not operations. Running the company is the job of the CEO and in a private company, the Board’s role is more advisory than oversight. However, a prudent Board does not rubber stamp the CEO’s decisions, but rather, holds the CEO responsible for the company’s performance. The focus of the Board is largely determined by the goals of the shareholders. For example, if the corporation is under-performing, the primary focus should probably be on the bottom line. If shareholders want strong growth for value generation, the primary focus should be on the top line.

Board Member Activities: Strategic planning is the most significant activity of the board. Many of the Board members will have well-established business networks that can lead to new account and market business development. Board members can help the company get introduced to new prospects or help create opportunities for potential acquisitions. The Board is the perfect entity to “war-game” strategic plans with, helping to further define tactical plans through a review process. Based on their vast experience, the Board may become a mentorship for the executive team in place, helping to align their vision with concrete strategic and tactical plans. From a financial perspective, Board members become the “dart throwers” in discussing the overall company financial performance. This post analysis review of the financial performance of the company as well as the overall capital investment initiatives, allow an independent Board to critically evaluate financial performance without bias.

Creating a Board is an crucial step for any business but it may not be for everyone. Most entrepreneurs are entrepreneurs because they like they control that they have in their lives. Having to report to a Board is diminishing that control, but the tradeoff is that the entrepreneur may have a stronger organization in the long run.

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John Matthews

John Matthews is the president and CEO of Gray Cat Enterprises and is responsible for the management of all consulting activities for the firm, which include retail consulting for multiunit operations; interim divisional or general management leadership; consumer marketing for companies launching products in the retail sector; and strategic project management. With more than 30 years of senior-level experience and a speaker at retail-group events throughout the U.S., Matthews has recently written Game-Changing Strategies for Retailers, which is available on Amazon. In addition, he has two step-by-step manuals, Local Store Marketing for Retailers and How to Stage a Killer Grand Opening!, which are available at www.graycatenterprises.com.

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