Entrepreneurs often feel alone on an island when dealing with the pressures and problems they encounter running their businesses. But there usually are a number of resources they can turn to for help — including others like themselves.
For many reasons, from the altruistic desire to give back to the need to put a few more dollars in their pockets, current and former business owners are willing sit on informal boards of advisers or, in some cases, more formal boards of directors.
They’re a resource that too often goes untapped, says John Francis, founder and CEO of Next Level Franchise.
“Boards may be among the more underutilized tools business owners have available to them for feedback on various issues,” he says. “A board is a powerful thing that can really add value to an organization with really little or no risk for the owner.”
Determining the right format
So, what kind of board is right for your business? The biggest difference between a board of directors and board of advisers is the level of formality and legal risk, says a panel of experts who gathered for a discussion in early January.
Boards of advisers are just that, says Jon Schindel, partner with SeilerSchindel PLLC. They offer advice business owners are free to follow or ignore. Boards of directors, on the other hand, are legal entities that have powers and responsibilities as defined by Minnesota statutes.
“If you say this is a board of directors that actually means something under Minnesota business law that has duties and consequences to it,” he says. “You just want to be a little cautious there.”
A board of directors is more permanent, harder to change and liable for the actions they take.
“They hire and fire and review the CEO, which is probably one of the most critical functions of a board of directors,” says Francis, an entrepreneur and consultant who sits on several of each. “And they have liabilities. Shareholders can sue a board of directors if they screw it up or do something wrong or don’t do something they are supposed to.”
Reducing infighting, buying time
Mike Porter, a professor and director in the Opus College of Business at the University of St. Thomas, spent 10 years on the advisory board of a publishing company that grew significantly during a difficult time for the industry.
The organization started as an advisory board and it technically remained that way throughout his tenure, though senior management had taken much of the board’s advice and used it to grow. The company’s shareholders included siblings who weren’t always in agreement with the decision to let the board make decisions, but it ended up being a good move.
“It pushes the leadership to a limit and it’s a limit that for long-term success is really important,” he says.
Having a board recommendation to fall back on actually can be a significant advantage in tamping down infighting.
“The president is the youngest brother,” he says. “The dynamics we had was in order to get him to have shareholder permission to bring somebody in to help with M&A, he needed to be able to say ‘the board says.’”
Acting as an intermediary is one of the unsung advantages boards can offer, adds Francis.
“A board is someone you can blame. You can blame decisions on the board,” he says. “‘Oh, the board made me do it.’ A board can give you credibility. ‘Let me run that past my board.’ Whether or not you ever do doesn’t matter. It buys you time to make a better decision.”
Contingency, transition planning
It’s less common for smaller companies to have boards of directors. Even when they do, the board’s function is primarily going to be keeping the business going strong through a transition, says Julie Keyes, founder and owner of KeyeStrategies LLC.
So, when working with a small business owner who is looking to sell a company, one of the first things Keyes recommends is forming a board of advisers.
“You need other outside advisers to actually help put a transition plan together and implement it,” she says. “I advocate for boards of advisers as much as I can.”
Involuntary exits from a business are common, but they’re also likely to go undiscussed, Keyes says. The five “Ds” that put enterprises at risk — death, disability, disaster, divorce and disagreement — happen to more than half of businesses. Boards provide at least the potential for some kind of safe landing.
“Where business owners are sorely lacking is in contingency planning,” she says. “They don’t look at the what-ifs, we all know the five Ds occur to at least half, if not more, of all business owners and the older they get the higher the likelihood. “
Francis agrees. An insurance policy is one thing that can help cover the individual and his or her family. What about employees, customers, vendors and others in the organization, he says.
“For some of these owners if the guy got hit by a bus, the board might have the ability to keep the wheels on things and either sell the company or hire somebody or do something else,” Francis says. “If you don’t have the board, that isn’t going to happen.”
That’s particularly important, Porter says, in family-owned situations where the unexpected death of an owner might create the need for some checks and balances.
“The board can be there so that Bobby doesn’t take the place just because he’s the next family member,” he says. “It keeps the wheels on and makes sure there is a process for deciding whether Bobby is the right person or, maybe Cindy is the right one. … Only the board is going to do that in a family-owned company.”
So, where do you find board members?
There are a few websites out there that look to match businesses with board members. They include Women in the Boardroom, founded by former Twin Citian Sheila Ronning, along with other sites like BoardSource and AdvisoryCloud.
“My experience is it’s personal and professional networking,” Francis says. “It’s people you know and respect and trust. … I think you’d be surprised the talent level you can recruit to a board. It’s usually higher than you expect.”
Don’t be afraid to ask a respected mentor or other person you think highly of, the experts say.
“To some degree it can be like an angel investor seeing themselves in those people,” Porter says. “The intrinsic value comes from helping like a shepherd.”
Make sure, they add, that the makeup has people who think and view the world differently and that it matches up with where the company is at in its lifecycle. Diversity is good, Francis says.
“Not just demographic diversity, but diversity of thought, experience, age — old people, young people,” he adds.
Keyes agrees that networking and mining those you know is part of building a good board. “Your network is your net worth,” she says.
But while hearty discussion is good, any search has to start with ensuring the members and owners share like values.
“Look at their expertise, make sure they are not a cookie cutter of the owners, I don’t think that’s ever a good thing,” Keyes says. “Having someone with the opposite in terms of skills and knowledge and style is a good thing — as long as the values match. They have to have a philosophy match. That’s the foundation of making a decision on who to bring in.”
And unanimously, the panel says board members should be compensated. It can be around $500 per meeting at the low end for a board of advisers or a few thousand for a more complex board of directors or for those serving in leadership roles.
It’s important for businesses to make sure the processes, procedures and responsibilities of their boards are spelled out in advance.
“Get the corporate documents together,” Schindel says. “They will dictate how you elect board members, what steps you have to take to call a meeting, how you vote, voting percentages to pass anything and will also define what the purview of the board is and what’s left to the shareholders. All that should be somewhere formal. It’s rules, it’s guardrails. That way nobody gets out of their lane and everyone knows what rules they are playing by.”
Schindel and Francis say board members should have the opportunity to get to know each other in informal, non-board settings. It’ll help build trust and collaboration for when they are working together on business issues.
Adds Schindel: board members don’t have to agree on everything, but do have to be respectful of each other. He’s worked with one company that has each prospective board member do a year-long internship before actually joining to ensure they are a fit.
“It’s okay to have a probationary period,” Schindel says.
Finally, facilitation is key. Make sure meetings are run well, Francis adds and make sure board members get agendas and supporting information far enough in advance of meetings so they have time to review
“If I don’t have the deck a week before I may not have a chance to get into it,” he says. “If you send it to me the night before, I’m not going to look at it on purpose. If you really want me to spend the time give me the time to do it.”
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