Does Your Business Need a Board of Directors?

Date: July 16, 2013

Board of DirectorsHow and why to assemble a focused group of individuals who can help you shoulder the heavy load of leadership.

At some point, you may find it necessary to build a board of directors or advisors who can help you ponder the big decisions, give direction and offer helpful advice. Either elected or appointed, board directors are governed by formal bylaws. They meet regularly and often make binding decisions. An advisory board, on the other hand, is somewhat looser. They are under no legal obligations and have no authority over the company. They are there simply to advise.

For most small businesses, assistance likely will come in the form of an advisory board. Here are five issues to consider when building an advisory board.

1. Builders vs. operators.

While it helps to have advisors who understand the day-to-day issues, the best boards will also include big-picture people—individuals who can help think through the issues that will steer the firm in the long term, says Shlomo Kramer, an early investor and board member in a number of security- and enterprise-software companies, as well as president and CEO of data security firm Imperva. A sales pro should know how to get the company to $30 million, but you may need someone else to chart a course for reaching $300 million down the road. Retired executives and successful entrepreneurs often fill the role of board visionary.

2. Weeding out the bias.

When assembling a board, the business owner needs to selectively choose individuals who are going to be utterly candid. "CEOs seldom receive unbiased information, and they don’t always spot a bias when they see one," says Linda D. Henman, president of business consultancy Henman Performance Group. "No CEO can be certain he or she will receive impartial information from those who have a stake in the outcome of the decision." In selecting an advisory board, the owner gets a chance to step away from the sycophants and bring on people who will speak from the heart.

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3. Starting early.

Don’t wait until issues arise to bring on talented advisors. The sooner you assemble the team, the better. "First, they can provide valuable expertise or introductions. Second, they can provide 'social proof,' some independent validation that your business might be worthwhile. Third, they can provide a source of seed or angel capital," says Zaneta Hubbard, vice president of Jaffe PR.

4. Complementing the core.

A board should expand upon, not duplicate, existing talent. Are you short in the marketing , IT, or finance areas? Look for board members who bring to the table experience in the areas that most need shoring up. At CPA firm Haskell & White, Managing Director Wayne Pinnell suggests drafting a "skills matrix," which identifies the firm’s existing base of knowledge and abilities and also notes the gaps in desired skills. The gaps then form the basis to target board recruitments.

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How to Identify Your Most Critical Business Decision

Who should you turn to for critical business advice? And how do your sources of advice stack up against other small businesses? NFIB surveyed 750 small business owners to understand who they rely on when making their most important business decisions. Find out what they said.

5. Avoiding conflict of interest.

In forming a board, it’s important to avoid conflict of interest, says Reed Alexander Atkin, principal at Double Beta Consulting in Seattle. Perhaps a prospective board member has a vested interest in another company presently considering a merger opportunity. A potential for conflict exists, and communication is vital. "I think that the key is that everyone—management, fellow board members, investors—know about the conflict so that everyone is comfortable with the action taken by that member at every step," Atkin advises.

It takes some care to assemble an appropriate board: The right skills mix, the right blending of personalities, the right balance of people who think operationally with those who look to long-term strategy. Overall, though, it can be well worth the effort when the payoff is a cohesive, focused group of individuals ready and willing to help the business owner shoulder the heavy load of leadership.

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