Organizations with more than a couple million dollars in revenue should have outside board advisers. And this has become even more important for business owners as the business environment has grown more complex.
“We get blinded to doing things one way or the other,” says Floyd Trouten, a tax partner at BDO USA LLP, who serves on several for profit and not-for-profit boards. “Maybe we get a little myopic in our view. We’ve always done it this way. We’re going to continue to do it this way. That’s probably the wrong approach.”
Outside board advisers provide a different viewpoint, even though at times the conversation may become difficult.
“I’ve been on a board where an owner said, ‘Why am I having this board meeting? I don’t like what you are saying. You’re trying to tell me how to run my business,’” Trouten says. “But we’re not trying to tell you how to run your business. We’re trying to share some insights into your business that you’re not listening to.”
Smart Business spoke with Trouten about the benefits of having outside advisers on your board.
Why are outside board members a good resource?
It’s very helpful from a business perspective to get multiple approaches and viewpoints from outsiders who can help you make decisions. Some people look at things in a way that others just don’t see, and a board allows you to have access to advisers you wouldn’t normally have.
Also, sometimes a board member can say something to an employee or work to resolve something because it’s hard for the owner to be a prophet in his or her own land. Or, perhaps management needs to reach out to board members to report something that the owner isn’t sharing.
The more complex your business, and the more growth it’s undergoing, the more help you may potentially need.
What’s the ideal make-up of a board?
If you don’t want a board for the image only, you want more outside than inside advisers. You have enough of an inside view already. If you have a five-person board, you would have two from the inside and three from the outside. If you have a seven-person board, the board should be three from the inside and four from the outside.
Who should serve on it?
You want to find board members who can work in groups and are willing to share ideas, success and failures — people who sweat over issues, roll up their sleeves and try to help make the business better. A ‘yes’ person is not a good trait in the long run.
It can be helpful to look for subject matter experts. For example, if you are in sales/distribution, consider someone from a different industry who knows a lot about sales and distribution. This adviser could provide good ideas. Or if your company is poor at branding, consider someone who has had a long career in communications.
In some cases, people ask someone who has name recognition because he or she can open doors. But that may not be the best move if it doesn’t improve your company.
Retired CEOs also serve on a lot of boards, but their effectiveness depends on how far they are removed from the business world.
You want people with experience who have insights and some gray hair, no hair or colored hair, as the case may be.
How do you find the right people?
You can ask your attorneys, accountants, bankers, people in industry, etc. You can do a board search. You can ask colleagues or other business leaders at networking events. You want someone who can help make decisions with you, so search carefully.
What else would you advise?
The board is not there to run the day-to-day business. It’s there to help set direction, help make decisions and help strategically plan.
You need to have board meetings at least three times a year. The company and management should provide board education about the nature of the business, so the board can be more helpful.
You don’t want a board that never gets into your factory or warehouse. A board that sees it up close can get a lot of different insights into what’s going on.
Insights Accounting & Consulting is brought to you by BDO USA LLP
