Forming Your Board
Recruiting the right advisory counsel will keep you from making costly mistakes.
Entrepreneurs who keep only their own counsel are truly dangerous for their companies. I often encounter companies, usually managed by dominant, Type A entrepreneurs, whose idea of a decision-making process is telling the management team what to do, with no discussion. This results in the company following a plodding track with little verticality. At Burke & Schindler, we refer to this as a company breathing its own air. Unfortunately, this stale-air-breathing happens far too often in small businesses.
A good example of a small company breathing its own air occurred when Burke & Schindler introduced an experienced franchise lawyer to a couple of young entrepreneurs who were growing a franchise bakery/restaurant concept. The lawyer, 15 years their senior, was outside counsel and a board member of a large fried chicken franchisor. The meeting was a disaster. The young entrepreneurs didn’t listen, didn’t ask a single question, and couldn’t be stopped from talking about how they were going to be successful. After the session, I apologized to the lawyer. He wasn’t upset, but simply said, “They’re just afraid to hear something they don’t already know, and as a result, their concept won’t succeed. It’s as easy as that.” He was right, and the business closed 18 months later.
Enlist Your Board of Advisors
The most effective means of prying the tight lid off an entrepreneur’s business and shedding some antiseptic light on operations is by forming a Board of Advisors. Note that I use the word Advisors, not Directors. Directors actually vote on matters, and, as a result, are legally responsible for certain corporate actions. For this reason, it is much more difficult to recruit a member to a Board of Directors. Further, since directors are legally responsible, the company must acquire directors and officers’ insurance, which can be expensive. Advisors, on the other hand, do what their name implies—give advice. Entrepreneurs can choose to follow or not follow it. As a result of this flexibility, advisors are not legally responsible. Advisors are simply applying their significant experience to your situation, which is likely similar to one they’ve encountered during their career.
Advisors perform three essential functions:
- Provide strategic direction and help set accompanying goals
- Suggest tactics to accomplish these goals (which often include targeted growth rates, new products, and acquisition opportunities)
- Help establish appropriate governance
Tactical suggestions may include creating effective sales force management, handling regulatory issues, and finding appropriate financing. Advisors are not micro-managers. Their advice is more directional than specific and it follows the NIFO (Nose In, Fingers Out) rule. This allows advisors to perform their most important role—helping your company avoid the big mistakes.
Leveraging Your Board Effectively
At Burke & Schindler, we often help companies like yours find appropriate advisors. This undertaking includes not only finding advisors with specific industry knowledge (they can often be retired executives), but also those who ran a business much larger than yours. The scar tissue an advisor has from having “been there, done that” is extremely valuable, particularly in your attempt to manage risk while growing. I always advise entrepreneurs who are recruiting their first board to aim high. You might be surprised by who agrees to come on board.
Running Effective Board Meetings
An effective board meeting is driven by a well-planned agenda, which entails follow-ups on action items from prior meetings and departmental updates. It is also important for entrepreneurs to actually solicit advice from advisors on the tough questions facing their business. At Burke & Schindler, our experience has shown us that business owners spend too much time during board meetings informing and too little time asking for input. Although the “informing” aspect of the meeting is important and usually adds much needed discipline, the advisor’s advice is what is most critical.
At Burke & Schindler, we suggest conducting four meetings (quarterly) per year of between two or three hours, and often a short meeting at fiscal year-end. Since advisors’ time is valuable, paying them is mandatory, and most small companies pay $500-$1,500 per meeting. In our experience, business owners receive value many times the fees paid.
Many Burke & Schindler advisors have served as board members for a variety of companies. Our experience shows that you, your company, and your employees will receive significant benefits from the inward inspection of a board member that is impossible for you to receive by simply looking outward and keeping your own counsel. Let Burke & Schindler assist as you seek out your Board of Advisors or Board of Directors and put their knowledge, skills, and valued advice to work for you.