|
|
|
Krause
Consultants, business consulting, strategic planning, public In the next few weeks, this page will feature business advice on a variety of topics from Charles A. Krause, President and CEO of Krause Consultants Ltd. This is the 31st article in the series. . . . A strong Board makes a first-class management even stronger . . . . . . And outside Directors bring a different perspective and a wealth of knowledge and experience in functional areas . . . . . . Be careful in selecting your outside Directors. ... An effective Board is rarely comprised of close friends. *************************** ... Please visit this site often as we will publish more valuable information on the management topics you're most interested in. *************************** All Companies Can Benefit From An Outside Board A strong Board makes a first-class
management even stronger . . . a professional Board makes management even
more professional . . . an optimum relationship between Board and management
creates an almost unbelievable dynamic . . .” I agree wholeheartedly
with this philosophy, expressed by Kenneth Dayton, Past Chairman of the
Dayton Hudson Corp., in the Harvard Business Review. It is an excellent definition of the
value of the independent professional Board. Outside Directors of
publicly held corporations are universally accepted as shareholder
representatives and constitute a powerful force in corporate life. Can privately held
companies also benefit from a Board comprising a majority of outside
Directors? I am certain they
can. The outside Director
brings a different perspective and experience base to the Boardroom. A wealth of knowledge in functional
areas such as marketing, finance, human relations, operations or planning is
available. An independent Board can
help managers make decisions that are often difficult to divorce from
personal feelings. Should the long-term,
but no longer effective manager be replaced, or are there alternatives? Should relationships with a lender be
improved or changed? Where
should cutbacks on operations occur?
How effective is the research and development program? The independent view and knowledge of
alternatives can be most helpful in answering these questions. Outside Directors can be
supportive counselors – and perhaps just as often should be emphatic
critics. Whether the company is
large or small, there is no room for, or no value in, a rubber-stamp Board. How do you go about finding
qualified people who are really interested in working with the privately held
company? There are many
experienced executives, educators, researchers, engineers or scientists who
would welcome the opportunity.
Directorships expand their horizons. It’s a two-way street. Some of the selection
techniques that have been successfully used include: ·
Search out top officers in larger companies with functional
skills you would like represented on your Board. Think of the Human Relations, Marketing or Financial Vice
Presidents. The Boardroom is no
longer a male stronghold – don’t overlook a growing bank of talented,
qualified women executives. ·
Consider faculty members in the School of Business of a nearby
college. While educators may not
have business experience, many have a surprising store of industry knowledge
and most serve as management consultants. They can bring a refreshing perspective or new outlook to
the Boardroom. ·
Look beyond your immediate area for well-qualified
executives. With the speed of air
travel, a Director can serve effectively from any location. It’s worth the price of a plane
ticket to get the right persons. ·
A number of executive recruiters specialize in Director
searches. We hear that their
results are often excellent. Assume that you have
been able to put together a Board of five Directors – three independent
outsiders, yourself as Chief Executive Officer and your selected
successor. How do you maximize
the return from the investment in your new Board? Before any candidate
attends a meeting, spend some one-on-one time acquainting the Director with
your understanding of the business, its problems, opportunities, competitors,
facilities and industry position.
Similar meetings should occur at least once a year. Individual discussions,
however, should not replace the deliberations that can properly take place
only when all Directors are present. Provide your new
Director with a complete package of reading material – financial statements,
employee publications, history, product literature, articles and bylaws and
copies of strategic and operational plans. If your plans aren’t in writing, discuss your perception
of your company’s future and how you expect to achieve your goals. Prepare thoroughly for
meetings. Get agendas and other
materials to Directors 10 days or two weeks before meetings. Change the agenda format occasionally
to keep from becoming bogged down in three-hour discussions of financial
history. Keep the focus on the
future. From time to time, bring
your top executives in to report on their areas of responsibility. This is good experience for them and
helps Directors evaluate the quality of your organization. Take Directors off-site
for two or three days every other year to discuss strategies for the
future. Professional guidance at
such meetings will help to stimulate total participation and keep the
discussion directed toward critical issues. These sessions will bring your own planning into sharper
focus and make it more responsive to your Board’s thinking. In a privately held
company, the outside Director is a thoughtful advisor whose purpose is to
help the owner-manager.
Directors serve at the pleasure of the owners and can be removed at
any time. That won’t bother
committed Directors, who fully understand this position. Thoughtful suggestions will be
offered in a way that ensures consideration. Your mission is to
listen – not necessarily to accept without question – but to listen;
thoughtfully, in order to benefit from the experience and knowledge you
sought. Bored or ignored,
Directors gracefully will take “early” retirement. One last point:
effective working Boards are rarely comprised of close friends – independence
and meaningful contributions go hand-in-hand. Similarly, your banker,
attorney or accountant will be less “independent” than is desirable. The optimum environment is one in
which suggestions, proposals, approval and disagreement will flourish –
productively. Plan to pay well for
good advice. We recommend a
combination of retainer (about 60 percent of the compensation package), plus
additional fees for meetings of the full Board and Committees. Review Directors’ fees
regularly, perhaps on the same schedule as the compensation package for the
CEO. Look at fringe benefits
that can be made available to Directors. A medical reimbursement plan or unique health insurance
features can provide tax-free remuneration and a more attractive compensation
package. You might also offer
the option to defer fees until retirement. Add an imputed interest
factor for use of his or her money or even offer stock in place of cash to
encourage continuing interest and commitment. It’s easy for owners of
a business to fall into a thought process that bases decisions on known or
familiar experiences. But can
anyone afford to run a business on the past, however successful? By surrounding yourself with independent Directors with important functional skills, your chances of considering all the alternatives and arriving at effective solutions are much greater. If you have chosen your Board members well, there will be the added advantage of meeting problems head-on in a stimulating, creative environment. *************************** NEXT: “Going Public” Demands Forethought
Contact InformationYou can reach Charles Krause of Krause Consultants through the information provided below. ................Telephone (414) 273-2733 ........FAX: (414)273-2177. Postal address: Krause Consultants
Ltd. Electronic mail | Home | Strategic Planning |
Business Consulting | |Public
Speaking | Tips | Feedback
| News |........... |
|
|
|
|
|
|
|
|
|
|
