If there is a major decision to be made
in your company, who makes that
decision? As the owner, do you make all the decisions on your own? Odds are
likely that prior to any major decision
being made within a company, other people, advisers or experts are consulted.
For a public company, there is likely an
advisory board in place for such major
decision-making. Smaller businesses
may not have such a formal board in
place.
But, every company should seek outside advice and expertise. For the smallest companies it may simply be their
accountant, lawyer or family friend.
“The key is to formalize the relationship and role to ensure that expectations
are set so results can be achieved,” says
David Janus III, president and CEO of
FirstMerit Bank’s Cleveland region.
Smart Business spoke with Janus
about the value an advisory board can
add to a company and how such boards
should be formalized.
What value can such an advisory board add
to a privately owned company?
The advisory board acts as an informal
executive management team, adding
management depth and providing strategic and oversight breadth. An effective
advisory board shapes and challenges
management’s goals, holds management
accountable, and lends critical thinking
to guide strategic direction and resolve
problems. An effective board works to
position a company to continuously
improve its performance over time.
What is the risk for a privately held company if there is not an advisory board?
A company without outside advice
risks insulating it from important perspectives that may grow or increase its
franchise value. Fresh ideas and creative thinking is necessary to keep a company
flourishing. Outsiders from other industries with different skills and professional experience lend critical insight that
can make the business more competitive
and effective.
Who should be selected to make up the
advisory board?
The board should be made of a broad
group of professionals who can be critical and constructive. Avoid constructing
advisory boards filled with friends who
will always support the owner regardless of results.
Paid advisers, such as the company’s
accountant and lawyer, have a vested
interest in the success of the firm and
are deeply knowledgeable about the
company. It is also valuable to add others without an intimate knowledge of
the company who bring different skill
sets that can aid the company operationally and strategically.
Chemistry among the board is also
important. The board must be committed to the company’s success. And, if you
are paying your board members, make
sure you are holding them accountable
and getting your money’s worth.
On what aspects of the company and operations should a board provide advice?
The board should focus on higher-level
strategic goals and objectives while management handles the day-to-day details.
A financial and operational scorecard
can direct the board’s attention to problem areas. If problems persist, the board
is responsible to challenge the owner
and to suggest solutions.
Why don’t all companies have advisory
boards?
There are a number of reasons. Some
owners feel that they alone know the
business and should make the decisions.
Other owners may choose to consult
with friends or hire professionals, such
as accountants, lawyers and bankers, at
times of conflict. Family-owned businesses may run entirely by the decisions
of family members.
An advisory board can be crucial to the
growth and success of a business. There
is vast talent and knowledge available to
business owners from individuals with
experience in diverse businesses and
industries. If you can tap into an extended knowledge pool to better your company, why wouldn’t you do it?
DAVID JANUS III is the president and CEO of FirstMerit Bank’s Cleveland region. Reach him at [email protected] or
(216) 694-5658.
