This article originally appeared in the September 2014 issue of Smart Business Philadelphia magazine.
A formal board of directors is a basic tenet of a company’s governing documents. Most people understand the significance of such a body within the public company world. Unfortunately, far too many private companies recognize only the legal formality of a board; too few understand the incredible value such a group can provide.
"Often, the most successful private companies utilize an advisory board or board of directors to hold owners accountable for goals and provide insight into a variety of matters", says Stephen W. Christian, a Director at Kreischer Miller.
Board members can serve as experienced mentors who complement the knowledge and skills of management.
Smart Business spoke with Christian regarding common issues with which a board can assist and how to choose the right candidates.
How can a company benefit from utilizing a board of directors?
Most significantly, an effective board can provide accountability mechanisms for management and outside perspectives that help business owners make grounded, forward-thinking decisions. The talents of a board supplement the skill sets of management. In addition, an organization’s credibility is often enhanced by its board of directors.
What kind of issues do boards help with?
In general, a board should weigh in on matters impacting the long-term advancement and protection of an organization. Business owners focus on the time-sensitive demands of the day, regardless of importance, while deferring critical long-term or complex issues. Boards often deal with topics such as strategic direction, risk management, growth strategies, succession and financing.
What should you look for in a board member?
First, define your needs and expectations. What skills, expertise, contacts and other factors are important? Directors should be candid, provide constructive feedback and hold people accountable. Individuals who previously owned and operated businesses often have valuable entrepreneurial experience and strategic thinking capabilities. A board member may or may not have relevant industry experience — both perspectives provide value.
Sometimes the need for functional expertise and an objective perspective trumps the need to engage someone with similar industry experience. It is very important to look for a person with a sincere interest in the process who will work diligently to fulfill the responsibilities.
What’s the best process to identify good candidates for a board of directors?
Talk to your professional advisers, review annual reports for local public companies, contact applicable industry associations, engage an executive recruiter, contact the National Association of Corporate Directors and talk to other business owners you know. Be specific regarding the qualities desired. Once identified, contact candidates personally. They will want to hear your vision, passion and desires and will determine for themselves whether the opportunity is a good fit for them. Try to stay away from friends and relatives; often it is difficult for them to provide the required objectivity and candidness.
How do business owners keep board members engaged and functioning at peak levels?
Significant effort goes into an effectively functioning board, from both the owner’s and board members’ perspectives. If done correctly, the value resulting from the process will far outweigh the costs. A business owner must be committed to the initiative — not just go through the motions of having meetings.
Best practices for effective boards include scheduling regular meetings, with sensitivity to the board members’ time demands; preparing for meetings and creating meaningful agendas; distributing information in advance so that members have time to read and digest it; and having the courage to replace non-performing board members. It is also critically important for an owner to keep an open mind. ●