Business

Build a strong board | Getting Help, Not Headaches, from Outside Advisers

These guys saved our hides. They’d been in the trenches with hundreds of companies in dozens of industries. Their “been there, done that” insight stood in stark contrast to our “going there, dreamed that” naïveté. Still, we didn’t accept their advice without grilling them first. While we couldn’t match their sophistication and expertise, neither could they look through our eyes nor see our vision. Tires Plus was our dream, not theirs, and we had an innate sense of what was best. We just didn’t know how to fill in every blank. That’s where our first informal board—John, Tom, and Dean— stepped in.

The dynamics

Board members command increasingly higher stipends. They’re also taking on greater risk. The 2002 Sarbanes-Oxley Act—the congressional response to scandals at Tyco, Enron, and Adelphia Communications—cuffed all public companies with tough new requirements. Now officers and directors are held even more accountable. That raised the bar for privately held companies, too. Higher expectations, heavier workloads, and a greater threat of litigation have turned board members into cold-eyed realists—my time is valuable. I’m assuming more risk. Pay me what I’m worth.

Diversify

A board typically has five to nine members. Pick people from both inside and outside your industry whose talent doesn’t duplicate your own. Complementary skills—finance, marketing, operations— among members is good. A lot of boards reserve a chair for the retired sage. Certainly, there’s a role for wisdom, but depending on the industry, contemporary knowledge can be even more valuable. The best directors have been through the wars of growing, building value, and exiting a company. They’ve already done what you want to do, on a larger scale. Yet they’re still in touch with day-to-day operations.

Select straight shooters

The board is your last line of defense (other than your spouse and kids) against fooling yourself. That means that members must say exactly what’s on their minds. Avoid the types who play politics and try to curry favor with management. They can cripple you. When I joined the board of a manufacturing company, I was shocked to discover that a lot of critical operational disciplines— org chart, budgets, board financial-statement reviews, accountability timelines—were either nonexistent or rubber-stamped. When I spoke up, an old-timer on the board went postal and scolded me for disrespecting management.

Prescribe protocols

Boards of privately held companies need to spell out how they do their work, lest conflicts creep in. Then everybody should stay out of each other’s way. An audit committee composed of outside board members should review financial statements and deal directly with the company’s outside accountants. Determine executive compensation with a committee composed of at least two outside board members—and the CEO if he or she is majority shareholder. Each committee elects a chair, who reports to the board of directors—not the CEO. Make sure each committee’s protocol and responsibilities are clearly defined.

Disclose rules.

In the interest of transparency, good boards post their principles on corporate Web sites (standards vary for publicly held and private companies). They may include how a board relates to management, how stakeholders access the board, and why the board does or does not separate the roles of chairman and CEO.

Last word

A good entrepreneur works his board, which isn’t manipulation. Build the board into your consciousness. Occasionally do quick one-on-ones over coffee. Besides rapport building, you’ll learn a ton. Share information—e-brief members regularly. Solicit input, not for consent or assent, but to stay connected and keep everyone in sync.

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