Public companies all have boards of directors, often with a variety of subcommittees such as compensation committees, audit committees, and nominating committees, among others. Because of their fiduciary obligation to the shareholders, board members are always focused on maximizing shareholder value, which often leads to a long-term rise in shareholder returns. However, boards aren’t just for public companies. Following are four benefits that private companies can derive from the formation of an advisory board.
- They can bring significant experience to the table. Large, public companies benefit from having a large number of highly experienced leaders in each business function who can help their companies navigate the process of entering new markets, launching new products, and buying other businesses. However, smaller companies often lack the same level of expertise. Forming an advisory board can help fill those gaps.
- They can help ensure that management focuses on strategic issues. With the myriad of issues facing management, they sometimes fail to devote enough time to the big picture. This often puts the company in a constant state of defense—where it is reacting to forces outside of business—rather than on offense. This is one area where boards can be of tremendous benefit because they provide natural pauses throughout the year for management to step back, assess the landscape in a structured, thoughtful manner, and make proactive decisions.
- They drive accountability. Why do people make public proclamations about their New Year’s resolutions? Because doing so makes them feel accountable to others for keeping those resolutions. Boards drive accountability in much the same manner. If management engages the board in discussions around a specific issue and develops a plan for execution, the pressure to execute before the next meeting can help keep you on track.
- They can expand your network. The right board members ordinarily have extensive professional networks, which can help management and owners identify sources of financing, acquisition targets, as well as new executives, vendors and customers.
Finally, the great thing about most private company advisory boards is that they serve at the pleasure of the owners and can be easily modified to address the evolving needs of the business, its owners and its management.
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