“Winning the Board Game”

Think you’re too small for a board of directors? Think again. Every company — including startups and family-owned businesses — can profit from outside directors. A formal or statutory board can:

• Generate creative ideas to kick-start growth.
• Help solve problems that impede growth.
• Connect you with strategic partners and financing sources.
• Guide you in avoiding risk.
• Help with strategic planning.
• Validate you as CEO and your company to key constituents, such as financial markets, customers and employees.

If you’re worried that outside directors might be a divisive force and challenge your authority, remember: A board’s primary role is to help management succeed. Directors have a vested interest in your success.

Laying the Groundwork

Draw up a charter that defines your board’s mission and the role you want directors to play. You may prefer only constructive feedback on your ideas. More likely, you’ll expect directors to help solve growth problems or advise you on a joint venture or marketing campaign.

With a charter in place, you’re ready to:

1. Define critical needs and issues. Review your strategic plan and what you need to make it work, such as Internet marketing, R&D, strategic alliances and technology. Then decide what knowledge, skills and competencies you most need in your directors, such as change management, board experience or teamwork.
2. Design your board structure. Decide how many directors you’ll recruit, how often you’ll meet and committees needed. At least half the board should be outside directors with no connection to your company. They’ll be more objective and honest than friends and relatives. Keep in mind that you want the board’s help to grow your company. Even if you own every share of voting stock, you can’t grow the company when you’re surrounded by "yes" people who say only what you want to hear.
3. Establish compensation. Average compensation at large firms was $38,216 in 1998, which included annual and per-meeting fees. At small- to mid-size firms, the average was a $10,000 retainer plus $1,000 for board meetings and $500 for committee meetings. Stocks are increasingly replacing cash compensation. Directors’ expenses are fully paid.

Recruiting the Right Directors

Some entrepreneurs use an executive search firm to recruit directors. But you can just as easily take recruiting matters into your own hands.

Start by creating a profile or statement of qualifications for each director position, based on the charter roles and critical needs or issues you’ve identified. Here are five tips for filling those profiles:

1. Ask the right people to suggest candidates. Talk to CEOs, directors of other companies, customers, vendors, investors and service providers. Consult with your management team and any current directors. Remember: You’re looking to match the director profiles you’ve constructed.
2. Interview top candidates in depth. Explain your board charter and the role you expect directors to play. Assess leadership and interpersonal skills by visiting them at work and, if possible, in their homes. Ask key questions:
   • Why do you want to join our board?
   • What’s your opinion of our company?
   • How will you contribute?
   • What are your areas of expertise, and how will they add value to our board?
   • What other boards do you sit on, and what is your role?
   • How have you added value to other boards?
3. Seek references. Talk to prospective directors’ employees, business associates, peers and, if the candidate sits on other boards, fellow board members. Go after references even for candidates you esteem highly — better to uncover any significant problems before an individual joins your board.Example: One entrepreneur reluctantly checked references and discovered a promising, high-profile candidate was notorious as a do-nothing on several other boards. He "served" for the prestige of board membership — and the free travel, meals and golf games that accompanied quarterly meetings.
4. Don’t try to clone yourself. Choose a good mix of directors who have:
   • Grown a business beyond the point you’re at now. You’ll benefit from what they’ve learned.
   • Experience in other industries that will enrich your board.
   • Good business connections to expand your network.
   • Strengths you need, such as finance or technology.
   • The ability to see the big picture and grasp the "global" concept of what’s going on with your company and industry.
   • "Soft skills" that help the board work productively. Seek people with a reputation for integrity, business sense, willingness to listen, problem-solving ability, good judgment and commitment to growing your company.
5. Orient new directors. Hold meetings with key management, and encourage mentoring by more experienced board members. Site visits and tours provide an inside view of the company. Provide briefing books that cover everything the new director needs to know, from mission statements and strategic plans to compensation and the corporate calendar.

Keep Directors in the Loop

Only an informed board can help your company. Withholding crucial information undermines directors’ effectiveness.

Case in point: A CEO set up her first board and then didn’t disclose one significant asset. This "sacred cow" on her balance sheet (a small farm) was draining cash from the business. When she finally came clean with her directors, they advised her to buy the farm herself. That put her company in a much stronger position for the strategic alliance the board had been reluctant to help her engineer.

You must trust your directors and give them access to:

• Full financial details.
• Business strategies.
• Top management.
• Key managers.
• Company branches or locations other than headquarters.
• Written reports at least a week before each formal board meeting. Include financial summaries, use of assets, new-product development, cash flow, capital projects, good news and problems.
• Trade and association journals.

Help Your Board Help You

Here are six ways to work effectively with directors:

1. Listen to their advice. Keep an open mind, even if you don’t agree initially. Ask yourself, "Do I have a blind spot on this issue?"
2. Take advice if it’s to the company’s advantage. Resisting just to save face or protect your turf will damage your credibility.
3. Be a learner. Recognize the need to "work for someone else," even if you’re top boss. Everyone — including a CEO — performs at a higher level when they know they’re accountable to someone who’s keeping track.
4. Stay in touch. Talk with individual directors between formal meetings when you have news to share or want advice.
5. Communicate honestly. Your directors will reciprocate.
6. Follow through. When you and your board agree that a particular action will be taken, make sure it is.

When It’s Time to Say Goodbye

Board membership is not "for life." Retain directors as long as they contribute to growing your company. Rest assured everyone on the board will know who has ceased to play a productive role. Have a policy in place to evaluate directors on the basis of merit and contribution. The results of such an objective process can lead to a board decision that allows you to fire a director. This is a particularly useful strategy when you want to recruit a director who is more forward-thinking and capable of guiding your company to the next stage of growth.

Writer: Kathleen Conroy