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Things to Consider When Appointing Advisory Board
By Marc I. Abrams, CPA, SLGG Partner
Whether your business is just starting up or already growing, an outside advisory board can be extremely helpful.
While a board cannot manage your day-to-day operations, it can contribute to the strategic process by drawing on board members' expertise and experience. It can help you determine whether you should expand a product line, enter new markets, and grow internally or acquire other businesses. In addition, for a closely held business that is considering going public, board members who have been through the process can be invaluable.
Before you select an advisory board, you may want to appoint a committee composed of company managers to research how other businesses have undertaken this process. You can then apply the committee’s results to your search for board members. You will probably want to determine:
§ Characteristics of a good advisory board member. These may include the abilities to strategize and to see all sides of the issues and a commitment to professionalism. A good director must also be willing to let you know if you are losing sight of your goals.
§ Skills and experience. Ideally, board members bring expertise that alleviates your company's shortcomings and supports your long-term goals. Of course, these will vary with each company. Perhaps your business could most benefit from board members with financia1 accounting expertise or an awareness of the latest developments in business management and how to streamline procedures. Technological expertise is increasingly essential to operations. Experience in the vicissitudes of running a company is key.
§ Board size. Appropriate board size varies with the size of the company, but your board should be large enough to provide an authoritative outside perspective. You may want to start with a small board of at least three members and expand it as necessary. Many companies have found that a board of more than seven members becomes too large for effective deliberation and decision making.
§ General composition of the board. To be most useful, an advisory board must represent a balance of talents, experience, expertise and personalities. These qualities must be in sync with your company’s strategic objectives. Board members need to be aware that their primary role is to help you run your company and meet your business goals. Don’t allow your board to be dominated by inside managers or you will defeat the purpose.
While you can try to recruit board members on your own, an outside search firm can help you to focus your recruitment process and widen the pool of possible board members beyond your circle of acquaintances.
Also, because a search firm will probably require you to engage in a more formalized process, you will be forced to be more explicit about what you are looking for - which might help you target the most qualified people.
You can take several steps to maximize the usefulness of your company’s advisory board. First, make sure board members know your business well. Provide them with a package of company brochures, past business plans and reports, press releases, product information and biographies of officers.
You may also want to educate them about your industry as a whole. Invite them to tour your facilities and send them updates about the progress of the company on an ongoing basis.
Schedule board meetings at least a year in advance, and prepare members for the meetings by sending them any information they will need several weeks before a meeting. Board meetings should take place at least three times a year, but no more than eight. This will ensure that they have time to address any ongoing issues or concerns that arise between meetings, but not so much time that they get bogged down in petty details.
Many businesses find that quarterly meetings work well. Also, make sure that you compensate board members for their time and commitment.
Take advantage of your board’s expertise and perspective by asking members to serve on compensation, nominating and audit committees. Based on this work, they can make recommendations about salaries, procedures and policies.
Set up periodic review and assessment process to monitor your board to ensure that it is continuing to contribute to the company’s welfare.
A well-balanced advisory board can contribute immensely to the success of your company, bringing increased professionalism and accountability, more credibility, a clearer sense of corporate mission and strategy and a broader perspective to important decisions.
By providing access to an expanded network of talents, skills and experience, board members can help your company expand into new markets and take advantage of new opportunities to boost your bottom line.
Marc I. Abrams is partner-in-charge of the Securities Industry Practice Group at Singer Lewak Greenbaum & Goldstein LLP He has over 35 years experience providing expert advice to emerging growth companies in the areas of business and financial planning, stock option valuation, litigation support, mergers and acquisitions and initial public can be reached at (310) 477-3924.
Singer Lewak Greenbaum & Goldstein LLP is a regional certified public accounting and management consulting firm with offices in Los Angeles, Santa Ana, Ontario, Woodland Hills, San Diego and Monterey Park.
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