Discover proven, accessible approaches to thinking strategically about your business in order to make more informed decisions, with a focus on the six business drivers that will put you in a position to succeed.
By Bryan E. Pearce
Director of Strategic Business Planning
Gray, Gray & Gray, LLP
Being the CEO of a high-growth business can be a lonely job. Many successful entrepreneurs have found real value in creating an external Board of Directors or Board of Advisors who they can use as a sounding board for ideas and concerns. What are the differences between the two formats in terms of structure and responsibilities? And how do you create an external Board that truly adds value to the CEO and to the company? Here are five points you should know.
- What is the difference between a Board of Directors and a Board of Advisors?
From a governance perspective, a Board of Directors (BOD) is elected by the shareholders (or equivalent) and has a legal responsibility for oversight, risk management and certain governance matters relating to your business – commonly referred to as fiduciary duties. Directors also assume some personal liability for certain actions of the company and will likely require that the company provide Directors & Officers with some level of insurance that offers liability protection. In most cases, the BOD has responsibility for hiring and firing the CEO, evaluating their performance and setting their compensation. In larger organizations, Boards also are responsible for the formation of Committees of the Board such as the Audit Committee that oversees issuance of audited financial statements and any regulatory filings; nomination, compensation and other committees as appropriate.
Alternatively, many entrepreneurs seek to create a Board of Advisors (BOA). Advisors do not take on legal responsibility or liability, but, as with a good BOD, are an objective source of insight, advice and connections for a CEO and members of their team.
- What skills and attributes should you look for in selecting Board members?
Many successful entrepreneurs create a Board to bring a diverse group of business veterans together with skills that complement those of the CEO and existing management team. Typically, these attributes fall into three categories: knowledge, experience and networks. A great Board should:
- Further credential the company as a result of the good reputations and respected personal and business backgrounds of the Board members.
- Work with the CEO to clearly articulate the mission, purpose & unique value proposition (often referred to as the “why”) of the company and to understand what it takes to be “enterprise ready.”
- Help the CEO and members of the senior leadership team be aware of and remain focused on those initiatives and metrics that will maximize value in the event of an equity financing and/or sale of the company.
- Provide relevant intelligence on such factors as competitive offerings, market needs and conditions.
- Serve as a sounding board for innovative new product, technology and business model ideas; key sales strategies; funding matters (including valuation, timing, sources, structure etc.); when to hire for certain positions; and in evaluating geographical/international expansion options.
- Assist with introductions and connections to potential:
- Customers & partners
- Key hires including other BOD/BOA members
- Sources of debt and equity capital
- Supply chain partners and vendors
- How should you structure interactions with your Board?
The structure of interactions between the CEO and the Board varies depending upon whether there is a BOD or a BOA. With a BOA, a CEO may have regular contact with one or all of the Advisors as needed and should agree with the full BOA on the best model to allow the company to get the full benefit of the Board. Regardless of whether the company has a BOA or a BOD, where interactions are more deliberate, there is real value in having more structured and periodic calls or meetings with the full Board, especially if the entrepreneur is considering raising external private or public capital in the future. These regular interactions can help the CEO to become more familiar and comfortable with the discipline of a recurring Board meeting process and demonstrate good governance practices to potential investors or acquirors.
For each meeting, a “Board Package” should be distributed sufficiently in advance to allow Board members to carefully review and consider the matters to be discussed. Typical contents of the Board Package might include:
- Meeting agenda
- Quarterly financial statements and any relevant sales and expense analyses
- Brief on any strategic issues or initiatives that the CEO or others on the senior leadership team wishes to discuss with the BOA
- Any significant litigation or risk management concerns, including IT security matters
- Specific requests from the CEO to Board members who may be able to leverage their expertise and networks to help accelerate the growth of the company
These more formal sessions might take place 3-4 times per year, and may be conducted via conference call, video conference, or in-person. In addition to these recurring meetings, the Board (or individual members thereof) may be asked to assist in special projects as requested by the CEO.
- What are the options for compensating Board members?
Board members may be compensated for their role through cash, equity or a combination thereof. As an example, Board compensation may include equity participation, cash for each structured Board session, and an hourly/daily fee for any project work specifically requested by the company.
- How can you identify potential Board members?
There are many ways to identify people with the attributes that will bring value to the CEO and company by serving as members of a Board. These include;
- Networking
- People who are already members of other Boards of similar stage and size companies
- Recently retired corporate executives or professionals who understand the business
- Executive search firms
A strong Board can be a great asset to the CEO and bring real value to a high-growth entrepreneurial company. In contemplating a strategic business plan, you should consider the role that a strong Board can have in those growth plans.
Upcoming articles in this series will look at Strategic Business Planning topics such as identifying and sourcing appropriate financing for your business.
Want more? Get in touch with Bryan Pearce, our Director of Strategic Business Planning, at (781) 407-0300 or at bpearce@gggcpas.com to explore how we can help you define your own future.
