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Helping hands: An outside advisory board can be just what your closely held business needs

September 17, 2009

Whether you have plans to launch a new business, your existing business is facing new challenges, or you just want a team of professionals on hand to offer objective advice, creating an outside advisory board can help.

Objective advice and more

The purpose of an outside advisory board is to provide objective advice, fresh insights, business wisdom, and expert counsel on many important matters without getting involved in day-to-day management. Although board members aren’t supposed to develop strategic policies, you can benefit from their experience and expertise when developing strategic plans, brainstorming new business ideas and navigating the direction of your company. Some areas where a board can be especially helpful include: •financing alternatives, •entering new markets, •technological advancements, •product development, •internal growth, •expansion planning, •mergers and acquisitions; and •succession planning.

An outside board also can help increase professionalism and accountability within your business and provide greater credibility with your company’s stakeholders. And for closely held businesses that are considering going public, board members who’ve been through the process can be invaluable.

From the ground up

Because objectivity is so important in an outside advisory board, when building your board, make sure each member is an independent third party, rather than a friend or family member. Ask your CPA, attorney and banker to refer potential board candidates to you or contact your local chamber of commerce and SCORE (a nonprofit small business assistance organization) for leads. You also can consult with the National Association of Corporate Directors for guidance or work with a search firm to help focus your recruitment process and expand the pool of possible board members.

*How many people should you look for

Board size varies with the size of the company, but, generally, you should try to limit the number of members to three to seven people. This will help keep the board manageable — particularly in terms of effective deliberation and decision making — and affordable. In exchange for providing their services, you may wish to pay corporate directors a yearly salary, provide additional compensation for attending meetings and offer stock options and various other benefits.

Make sure board candidates understand your company’s mission and goals. They also should be clear about what’s expected of them and be able to commit the necessary time to get the job done. Members should have skills, experience and expertise that complement your company, that can fill in gaps in areas where your company may fall short on knowledge and experience, and that support your long-term goals.

Chemistry matters

When selecting members, be sure to also consider chemistry. Each board member should be able to interact well with you and other members. Keep in mind, too, that, as your business needs change, you may need to rotate some board members out and bring in new blood. For example, if your company undergoes a major technology makeover, board members who were invaluable when the business began — and technology wasn’t a significant factor — may not have the experience needed to help you through the next business phase.

Board appeal

All in all, a well-balanced outside advisory board can contribute immensely to the success of your company, bringing increased professionalism, accountability and credibility, a clearer sense of company mission and strategy, and a broader perspective to important decisions.

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