How To Build A Board And Make It Work

Boards of Directors - Description of Service

The decision to create a board of directors is not one to be undertaken lightly. Building a board and making it work takes a considerable amount of effort. You need to decide what type of board you want and devise strategies for recruiting board members, setting goals and training directors.

* Because many boards of directors of privately held firms fail, it is extremely important to rely on LSH as your corporate or company advisor for their expertise for providing helpful advice for companies that are thinking of developing a board of directors, for companies that already have working boards, as well as for current board members.

The Approach

Our approach is cautionary, acknowledging the effort required to make a board of directors work. Although a board serves many useful functions, such as arbitrator between partners and family members and a conduit to financing, having one requires a significant investment of time and a willingness to compromise. It takes time to recruit board members, prepare a meeting agenda and follow up with minutes of the meeting.

As a result, many boards of privately held firms fail, because the CEO misperceives the boards power and influence. Unlike a board of a publicly held firm, in which in which members control the company and determine company policy, a board of a privately held company serves at the CEO's discretion in an advisory capacity.

Some companies needs may be better served by ad hoc committees comprised of specialists. Such a committee is organized to accomplish a specific task, such as reviewing benefits or helping with succession planning. A committee can be set up quickly and disbanded when it has completed its task.

Once you've honed in on what you want your board to accomplish, you must determine what type you need. LSH has come up with the following five types of boards:

*** The window-dressing board, whose only goal is short term image building. For example, a young company with a shaky record could improve its image with a few high profile directors.

*** The strategic board, which deals with major company or corporate objectives - such as long range planning, expansion and acquisitions - and the policies needed to achieve them.

*** The operational board, which is involved in a company's day-to-day business decisions and activities. Operational boards rarely function well if dominated by outsiders who are not familiar with the details of a firm's operation.

* * * The networking board, created to extend the range of contacts available to the firm's owner(s), is usually compromised of high-profile, well-connected community leaders.

* * * The all purpose board, is a hybrid of the other four and is involved in all levels of the company's activities.

Minding Your Members

Although there is no magic number, you should take care to ensure that your board does not have more than seven or eight members, since anything larger becomes difficult to manage. LSH's general rule is to start small and add members as the need arises.

LSH also offers advice on deciding the mix of inside and outside board members. Keep in mind that inside directors work for you, and their employment depends on maintaining your good will. But they can bring an informed subjectivity to the board that can be very helpful because of their day-to-day experience within the firm.

Outside directors, on the other hand, bring objectivity along with expertise and contacts. To capitalize on this expertise, look for outside directors who are actively engaged in their careers. It's probably best to choose a balanced mix of people with general business backgrounds and specialists with expertise relevant to your business.

We also make a good case for investigating board candidates character and potential conflicts of interest by looking at the clubs and social organizations to which the potential recruits may belong and by discreetly checking their employment. Our reason: your company's image can be destroyed by unethical board members.

Finally, you need to find people who are willing to make the time commitment that board activities require. It is essential to inform potential directors, before they are appointed, of how much time they'll need to devote to board duties. A specific meeting schedule will avoid the problem of absent members at important meetings.

Common Objectives

• For The Board Of Directors
• Legal requirements (organization)
• Window dressing (public relations)
• Stockholder/stockholder involvement
• Networking (access to capital/markets/agencies/people/etc.)
• Strategy/policy formulation
• Independent assessment/review/audit
• Management continuity and succession
• Specialized expertise (financial/international/technical)
• Innovation(new venture/product development and expansion)
• Arbitration (family members/multiple owners)
• Crisis management
• Committee assignments

Structuring The Board

To maximize their usefulness to your company, it's important to prepare your directors for their positions through training and education on company-specific information and general issues of corporate leadership. You can use either professional trainers or consultants (such as LSH), or train in-house. And you need to establish directors terms of service and termination procedures, especially since ineffective directors can be hard to remove.

In terms of structuring your board, you probably want to appoint a chairperson, who approves the agenda and runs the meetings; a secretary, who prepares or approves the corporate or company minutes, and records and signs various official documents; and a treasurer, who handles the bank accounts and is responsible for various functional matters. You also may need to form board committees to deal with specific issues - - such as audits, finance, strategy, and long-range planning and public policy - - in order to delegate and distribute the workload.

LSH will show you how to evaluate board meetings, how often to have them and how to communicate the board's activities to your staff. LSH will also discuss the cost's involved in running a board, including board member compensation. These details make the service very useful.

An information pamphlet should be handed to every director upon board appointment. Here we discuss legal liability, exceptions, challenging owners, the role of the insider from his or her vantage point, dealing with crisis, the benefits of serving and how to be an effective director.

When you've decided to consider forming a board, LSH will aid your decision making process with their expert advice on the critical issue of boards of directors.

Lee, Sperling, Hisamune
550 North Brand Boulevard, Suite 525
Glendale, California 91203
Phone: (818) 507-6645 - Fax: (818) 507-7891
Email: lsh@leesperling.com