7 Reasons Why Growing Companies Need a Board of Directors In my last article we looked at whether your company should have a Board of Directors. Although there is no prescription for the right time to put one in place, as many start-ups wouldn’t be here if they didn’t have a board on day one, concurrently, there is no “Expiration Date” on a well-run company that does not have a board by, for example, $10mm in revenue. However, here are 7 reasons I have found to be true of a growing company’s and CEO’s need for a board. 1. You are not as smart as you think you are - Brains and Talent. Yes, I said it! The old adage is true: ”Together we are greater than we are alone”. Although most entrepreneurs possess a stalwart optimism and stick-to-it-iveness, the collective wisdom of a well vetted board will trump your individual opinion, experience and talent every time. Good boards think offensively when you are stuck and defensively when you need someone to watch your flank. 2. Experience costs too much to learn on the job - Table Stakes. As businesses progress, sadly, too many CEOs push forward and often learn as they go. After all, it’s worked so far. Realistically, the skills to get from $0.00 in revenue (Start-up) to $10million often take one set of skills, $10mm-$30mm another, and $30mm-$100mm yet another. I do not particularly subscribe to “experience is the best teacher” but experience is certainly the most costly teacher. Improve your odds of success by getting a few board members, as my kids say, who have “BTDT” (Been There Done That) and have the brass rings and scars to prove it. 3. Often, in the shadow of your greatest strengths lie your greatest weakness - Self Awareness As CEOs, we often bring a unique discipline, mindset, gifting or bias as to how to run a company. Many of us have been forced to become generalists; however, when you roll out a bed and your feet hit the floor for the first time every morning, you wake up a certain type of person, a CEO, or leader. As such, and as my Colleague and Mentor, Darin Leonard, so aptly states in this business axiom, “Often in the shadow of your greatest strengths lie your greatest weaknesses”. Simply put, if you wake up a Sales guy, you better find an Ops guy; if a Marketer find a Finance guy; if a Visionary have a Pragmatist; if a Technician have some Strategists to sit on your board. You get the picture! 4. Forest, Trees, Bark - Perspective Another associate, friend, and mentor, Dave Parker, has a blog for Tech Start-ups entitled ForestTreesBark.com, which recently moved to his website http://www.DKParker.com/blog. CEOs depending on the evolution of the business they are running will find themselves navigating between each of these preverbal views. Although many would prefer to be missional or visionary leaders (Forest),
sometimes we can only see the trees (operational and tactical complexities), or we get mired in the bark (urgent, firefighting, crash or “bark eating” avoidance). I would like to add roots to Dave’s insights when it comes to board service. A good board will not only keep the company leadership oriented at whatever level of view is needed, i.e. strategic, but will often call for periodic assessments of the overall health of the company - from the “roots” on up. In short, can the roots support the CEO’s plans? (Roots = Management Team, Banking and Financing Structures, Capacity, Cap-ex, Merger and Acquisitions Strategy, Market Alliances, etc.) Perspective is hard to achieve when in the middle of the day to day - boards help here. 5. Serve your company and yourself, the CEO - Proper Mix to Serve Personally, I am fond of a non-profit language of “board service” which pretty much says it all. Ultimately, the CEO and the board need to possess a servant mentality to serve the best interests of the company, its stakeholders and shareholders. To that end, the needs of the company should be considered first, then the desires of the CEO. Just as product mix is important to your sustained profits, so, too, is board make up and mix. Are you in hot water with your bank or growing at a 30% clip? You better have a banker or finance guy on your board. Revenue flat? You better have a sales guru on your board. Need new products to compete? You better have a new product development specialist. Bleeding money out the plant door or product returns killing you? Get an operations and quality guru on your board. You see, board members are there to serve the company, not hang out with the CEO or provide a stamp for management’s decision making. As my granddaddy was fond of saying, ”Advice is typically for the benefit of the giver,” which I believe to this day was his kind way of saying what the old adage most of us know as “advice is cheap”…without service. By having a board serve the company, it will automatically serve the interests of stakeholders and shareholders because without a thriving company, there are no stakeholders or shareholders. 6. Change it up - Be relevant and nimble I have seen a few companies have the same board members for 30 years…and legitimately ask why they are having the same old problems or bemoan that 1980’s management decision making is no longer moving the needle for their company. The world has changed. If your main customers or buyers are now Gen X or Gen Y’ers or Millennial’s, you better have 1 - 2 “crazy-silly-smart-tapped-in” ones ;-) on your board for their insights alone. If your competition can get on Elance.com or ODesk.com and hire 10 people for $3.00 an hour to do the work you are paying 1 person $30.00 an hour for domestically, and yet you don’t believe global
competition has reached your door, you better get a board member that has global competitiveness knowledge and reach. The world is changing rapidly and your board needs to keep up to date or they are no longer serving your company. 7. Board member vs. trusted advisor - Neâ€™r the two shall meet Objectivity is a funny thing. We all claim to have it and be able to maintain it, but be it accountant, attorney, financial planner, wealth manager, banker or consultant, as long as a portion of what you are paying your trusted advisors for is to serve you or serve a role in your ongoing operations vs. give you truly objective advice (for a board fee or not), they have lost a degree of objectivity. Your CPA may be a long-time trusted advisor, so keep paying him or her to give you advice they are responsible for, i.e. tax and cash flow modeling, etc. However, they cannot simultaneously serve you through fees and offer you 100% objective board level advice. To be clear, I am not drawing a distinction between the legitimacy and honor of profession, trusted advisor or board member, but merely clarifying that the company is not best served by having one person wearing both hats - the conflict is imminent. Remember Arthur Andersen simultaneously auditing Enron and coaching them how to set up off-balance sheet shell companies â€“ not a good plan!
Bottom Line is - The buck stops with you as CEO, so make sure your board has your back and ensure your company, and those depending on you, will be around for a good long time by carefully vetting a board and committing to regular meetings. Next post - Are you working FOR, IN or ON your business and how to step up to the next level.
Published on Mar 19, 2013
I would like to add roots to Dave’s insights when it comes to board service. A good board will not only keep the company leadership oriented...