What risks do you run by having an ineffective board?
It’s wasted time and effort if the board is not working to the best of its abilities and doesn’t contribute to decisions. It takes the focus off of running the business. The board should be helpful and not a detriment. It needs to get timely and accurate company information, both financial and operating, in advance of the meetings, so the members are prepared to discuss the issues and challenges that the company faces.
What’s the difference between a board of directors and an advisory board?
Advisory boards can be very helpful to companies. The difference is that the board of directors is a formal board with authority, and is part of the company governance. Advisory boards are more of an informal arrangement, where there are exchanges of thoughts and ideas and perspective, but the advisory board doesn’t vote or have any authority as far as decision making. A company of any size should have either a board of directors or an advisory board to help them.
Companies that have a board of directors usually have an audit committee. This is important for the financial side. The board should benefit the company, both from a financial perspective and an operations perspective. But on the financial side, it’s important that they have a good audit committee that meets with the auditors, goes through the audit results, asks a lot of questions, and makes sure the company keeps current with the latest accounting and financial statement pronouncements.
How can you make sure your board is effective, and why are these items important?
Board members need to be paid. Sometimes boards are made up of buddies of the owners, and they don’t get paid much, don’t offer much, and don’t have strong opinions and therefore don’t challenge the owners and management from time to time. There needs to be high expectations for participation and information from the board members in exchange for reasonable compensation for their service.
If you’re going to go to the trouble of having a board of directors and spending the time with them, you need to take it seriously and have strong board members. This ensures that their time is productive, and adds something that the owners and management don’t already have. The board member should bring something to the table that the company lacks or isn’t strong in. This ensures that your board is effective and helps make your company successful.
Jim Bechtel, CPA, is the director of assurance and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5208 or [email protected].
