How to build a better board

By Chris Yount

Know the steps 

Eventually, your family business will grow to a point where you realize you need help setting its strategic direction. To provide a reality check on your vision and performance, you need an unbiased view. Most leaders create a board to help with these issues.

So, what is the first step in building a board? Let’s begin by defining the different types of boards  so we can find the right fit for you.

BOARD OF DIRECTORS (BOD)

A board of directors has a direct fiduciary responsibility to the shareholders of a company. The company’s bylaws, its legal status and the laws of the state in which the company is incorporated all can affect the formation of the BOD.

BOD members can be held legally liable for their decisions and often require directors and officers liability (D&O) insurance to protect them from potential lawsuits. Given the high costs and responsibilities of this structure, typically official BODs are used only by larger and/or public companies. In family businesses, if a BOD is required, it is often populated only with family members/shareholders to retain tight voting control.

BOARD OF ADVISERS (BOA)

The terms “board of directors” and “board of advisers” are often seen as synonymous, but they are very different. A board of advisers is much more informal and truly operates at the will of the CEO or executive committee, giving them more control of its operation.

A BOA also has no fiduciary duty. In other words, advisory board members are unlikely to be held liable for their advice. As a result, the advisory members can give their opinions more freely.

Most importantly for family businesses, the BOA requires no voting powers. This gives owners/leaders much more freedom to take the advice that best fits their vision, with no legal requirement to enact plans they disagree with.

FORMING AN ADVISORY BOARD

If a formal board of directors is more appropriate for your needs, you should consult with an attorney who can help set your corporate bylaws accordingly.

When assembling a board, here are a few key structural decisions you will need to make:

Meeting Format and Frequency: The format of live meetings vs. conference or video calls will depend on the needs of the business. In-person meetings are convenient if all your board members live in close proximity. If your board members are busy and travel is difficult to schedule, teleconference options may be more practical.

In my experience, a monthly meeting schedule is too frequent. Monthly meetings focus too much on daily details. On the other hand, if meetings are held only once a year, a lot of time will be spent catching the outside board members up on what has been happening in the business/industry. For most, quarterly meetings achieve the right balance.

My family’s business held quarterly meetings. Three of them were two-hour teleconference sessions, and one was a full-day, live event that dove deeper into strategy and direction.

Size: Advisory boards are typically composed of both internal and external members with no “correct” number of members. I recommend between five and 10 total members, enough for diverse opinions but not so many that voices get lost in the crowd.

The CEO or president is, of course, required. Other internal candidates should include key executives such as the CFO, vice president of sales or COO.

External board members are harder to find. I recommend beginning your search for an executive who counterbalances your area of weakness. For example, someone with an accounting or CPA background could be helpful if finance is not your specialty. If you have a directive to expand into a new market, find someone with a background in that area.

Diversity builds value in your board. Board members from your industry can provide invaluable insight and connections, but look for people who will bring perspectives from other areas as well.

Finding External Board Members: As Lewis Carroll said, “If you don't know where you are going, any road will get you there.” Start with a detailed list of the criteria discussed above so you are clear on a profile of the person you are looking for; know the skills, years of experience and background you will require.

With a target in mind, you can choose to give the task to any number of board consultants or search firms to do the digging for you. Alternatively, you can work your network by getting the word out to every corner of your personal and professional universe. Industry associations, business networking groups and LinkedIn are all great venues to scour for the right candidate.

Take time to interview any board members carefully about their experience, how they solve problems and whether they are a good cultural fit with your family and business. Culture is of the utmost importance within family businesses, and the wrong board member can be damaging to it. It is also good to be clear about expectations for time commitments, meeting preparation requirements and compensation.

Forming a family business board can be a major undertaking, but it will be worth the effort. Your board can help you improve efficiencies, plot new strategies and even prepare your business for generations of growth.

Chris Yount led his third-generation family business before selling the company in 2018. He now shares his wealth of experiences by serving as a board adviser, angel investor and author (www.ChristopherYount.com).

Issue: 
March/April 2022

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