Don't ask friends to be on your board. They can get in the way of a board's mission.
An advisory board is not going to be helpful unless members think outside the normal.
If you've been considering implementing a board of advisors, you're in good company. After all, the potential value of receiving counsel from a group of carefully assembled professionals is apparent. But, beware of the poorly planned board. It can sap time with no real benefits.
Why implement a board of advisors?
The answer is obvious — to get feedback and objective advice from outside peers.
Joe Bellwoar, founder of Colonial Electric Supply, King of Prussia, Pa., understood the potential help an advisory board could provide him when he started the company nearly 30 years ago. As an employee of the old Colonial Electric, Joe Bellwoar bought the name and inventory when the company shut its doors in 1971. He renamed it Colonial Electric Supply, offered jobs to all the old employees and moved the company to a new location.
He also implemented an advisory board that has helped make Colonial Electric Supply No. 82 on Electrical Wholesaling's listing of the 250 Biggest electrical distributors. “Our advisory board acts as a consulting group to the company,” said Steve Bellwoar (Joe's son), president of Colonial Electric Supply.
Colonial's advisory board members have expertise in different areas. “We want to look at what we're doing from a lot of different angles that we wouldn't necessarily consider from within,” said Steve Bellwoar.
The outsiders on the board consist of a lawyer, the president of a small manufacturing company, two presidents of similar-sized distribution companies, a former bank executive, and an electrical engineer who was on the original board when the company started. Steve Bellwoar, his two brothers and father, and a cousin are the insiders on the board, which meets twice a year.
“We talk about issues as to our growth and where our target markets are. We look at different areas to expand into. We look at acquisition candidates and projections as far as synergies and how realistic our projections are,” said Steve Bellwoar.
“Once there was a specific insurance package we were looking into. The board gave us some insight into things we hadn't thought of that made the situation not as attractive, so we were able to back off from that insurance package and go in a different direction.”
Although Colonial Electric Supply has had a board since its inception, many companies don't identify a need for one until later.
Randy Bliss, YHB Consulting, West Hartford, Conn., has helped hundreds of companies put together boards. He says that company leaders usually fall into one of three schools of thought when it comes to advisory boards.
“The more forward-thinking business leaders recognize they don't have all the answers and can benefit tremendously by associating with other business leaders,” says Bliss. “Those people will proactively seek to build an advisory board.” According to Bliss, this group usually makes the most effective use of a board.
The second group begins considering a board of advisors during times of great growth, change or when the company is experiencing problems. For example, “They can't get the business profitable or growing like they want,” says Bliss. “Or they could have multiple divisions that make the company very difficult to manage, so they start looking at putting together an advisory board.”
Business leaders in the third group think they don't need an advisory board. “They've run the business for so many years that they know everything there is, so who could advise them?” said Bliss.
Ask yourself why your company needs an advisory board.
For those distributors who see a board's potential benefits, it's important to take a close look at your company when answering the question, “Why implement a board?”
Formulating your company's answer to “Why?” will be the most important step in building a board. To bring together the right people, you must have a very clear purpose for implementing an advisory board.
What Bliss likes to do at this stage is assess the company's current leadership group to determine which areas need some outside strength. “Let's say the company is excellent at sales and marketing, but operationally they always seem to be dropping the ball. One of the things we might look for when we're putting together our advisory board is a business leader that has tons of operations experience that could provide that strength,” says Bliss. “You go through a process of identifying the strengths and weaknesses of the company so that you might be able to put together a list of ‘nice-to-have’ backgrounds on our board.”
For Jeff Siegfried, president of Omni Cable Corp., West Chester, Pa., clearly defining his purpose for implementing a board meant spending time thinking about Omni's mission and goals. Ultimately, his goal for implementing an advisory board was to continue molding Omni so that it would be a better partner/vendor to customers. “Ninety-nine percent of the reason we implemented an advisory board started with our customers,” said Siegfried. “We wanted to drive a better product to our customers.”
Make a list of potential board members.
With those goals in mind, Omni began compiling a list of potential advisory board members. “We were looking for a group that would have the necessary experience to help us hone our package,” Siegfried said.
He asked Omini's key management to jot down names of anyone they thought might be good. After several weeks of brainstorming, the group met to discuss the list. They talked about each person's background and how they might contribute to Omni's goals.
In addition to considering peoples' backgrounds, it's important to consider personalities and the chemistry of the group. Although you want people with whom you'll get along, it's best to the steer away from friends.
“We shied away from people that we knew real well,” Siegfried said. “I didn't want them to worry about offending me.” He says egos and friendships can get in the way of an advisory board's mission.
Bliss agrees. “If the people on the board are too close to you, they're not going to speak freely. I've served on a number of boards, and I've gotten to know the people so well that I find myself reluctant to say things because I don't want to hurt their feelings…I don't want to rock their boat even though it's full of holes. It's just human nature.”
Meet the candidates.
After culling the list of names, put together a game plan to meet the people. Bliss suggests that the person who provided the name have an informal chat with the candidate. The conversation should go something like this: “I have this company. We're trying to do this and this. It's a great company. We really need some outside advice. Would you be willing to talk with us about serving on our advisory board?”
“Recruiting is really much easier than people think,” says Bliss. “If someone has done well in business, they know that the reason they've done well is because others have helped them. Most business leaders are very helpful and willing to serve on boards.”
The next step is to set up an informal meeting with the candidate and your key people — maybe lunch and a tour of the facility. “It's not recruiting in any sense of the word,” says Bliss. “It's networking and trying to see if the chemistry is good.”
After a few meetings like that, your leaders can meet again and decide which candidates they liked and think could be helpful. At this point, the company president would give the individuals a call and ask them to serve on the board.
Firm up the details with the potential board member.
When the company's president invites someone to serve on the advisory board, it's important for both parties to be clear on expectations, the board's structure, compensation and other details. Ironing out these details on the front end can save big hassles later.
What is a typical fee? Fees range from $1,000 to $2,000 per meeting. They should be comparable to the daily fee for an average consultant, Bliss says. Advisors are also reimbursed for travel expenses. Colonial Electric and Omni Cable both pay their advisors around $1,000 per meeting.
How often should the board meet? “The number of meetings really depends upon the dynamics of the kind of feedback that you need — and that ebbs and flows,” says Bliss. “I think anyone starting a board should say, ‘We're going to try to meet three or four times a year, but we may want to meet more regularly if some things come up.’”
Bliss serves on the board of a company that recently made a lot of acquisitions and was developing a new product. For a while that board met every month, but now it meets every other month. He also serves on the board of a distribution company that meets twice a year. For that smoothly running company, twice a year is plenty.
Colonial's board meets twice a year, and Omni's meets quarterly. But, both Steve Bellwoar and Siegfried stay in touch with their outsider advisors between meetings. “The more business leaders can be exposed to these outsider advisors the better,” says Bliss. He suggests phone calls to get clarifications or further discuss meeting topics.
How many advisors do I need? Colonial has six outside advisors; Omni has four. Bliss suggests three or four outside advisors. “You are usually inviting insiders to various sections of the board meeting,” says Bliss. “You really don't want to get more than 10 people involved in any part of the meeting because the meeting can become cumbersome.”
How long should an advisor serve? Bliss suggests setting it up on basis of “let's see how it works out for both of us.”
“You need to make sure that an advisor knows he might leave even after two or three meetings if it's not a good match,” says Bliss. “I make sure that both groups — the insiders and outsiders — know that this is just going to work for as long as it's going to work.”
He also suggests limiting the amount of time an advisor serves to no more than four years but says that his suggestion usually meets resistance. “I get a lot of reluctance from the business owners on rotating their board members,” says Bliss. They tell him that after four years the outside advisors finally understand the business and are getting really helpful.
“What I think is really happening is that they're finally comfortable with these people and they're comfortable with what they're going to say,” says Bliss. “But you really need that freshness coming in. After three or four years, usually advisors have given the primary strengths that they're going to be able to add.”
Set an agenda for the meeting.
The key to a successful advisory board meeting is an agenda. Send it to both outsider and insider board members well ahead of time — at least a couple of weeks prior to the meeting. It doesn't need to have all the details, but it should outline the discussion topics to allow everyone to begin collecting their thoughts.
A good agenda will also help you estimate the length of the meeting. “I don't know where this idea came from that it has to be a full-day meeting, but it's just not necessary to think of it like that,” says Bliss. Estimate the length of time you want to spend on each topic, and then add the times together. If it ends up being three hours, fine. If it ends up being six hours, that's fine too.
The person running the meeting will also play a critical role in its success. “That person has to know when to move on to the next topic and when to stay on the topic,” says Bliss. “They need to be able to direct the discussion back to the main points because things go flying around like crazy.”
He says that's the chief complaint people have about advisory board meetings — getting off track. But, it's really up to whomever is directing the meeting to keep the meeting focused.
Another complaint is that discussions tend to be of the familiar and safe. “You want people to challenge you,” says Bliss. “You want to hear good creative alternatives. You want to know what they did and why it worked or didn't work. You want to know why they think what you're contemplating is not a good idea. Or why they think it's good.
“An advisory board is not going to be helpful unless they think outside of the normal. If that kind of environment is not there, then nobody is going to get anything out of it.”
ADVISORY BOARD DOS AND DON'TS
DO implement a board of advisors. “Companies that seek advice before they desperately need it generally are far better off than those that wait until a calamity has struck and then need to scurry around,” says Ed McGrath, former president of Graybar Electric Co., St. Louis, Mo., and a current advisory board member for Omni Cable Corp., West Chester, Pa.
DO have clear reasons for having a board. To get good feed back, you need to assemble the right people. To bring together the right people, you must have a clear purpose for implementing an advisory board.
DON'T ask friends to be on your board. Sure, they'll tell you how great you and your company are, but is that what you really want? “I'd rather have them tear me apart,” says Jeff Siegfried, president, Omni Cable Corp.
DO assess your company's strengths and weaknesses. Try to find advisory board members who will help fill gaps in your company's armor.
DO consider serving on another company's board. Those who sit on a board take something away as well as giving. It will help you gain perspective, and it will help you run your board meetings better.
DO try to schedule board meetings two or three meetings out, so everyone can pencil them on their calendars.
DO seek advisors located relatively close geographically. “These are busy professionals,” says Randy Bliss, YHB Consulting, West Hartford, Conn. “Taking a day out of their schedules is tough. If they have to travel a day on both ends, it's not worth it for anyone.”
DO send an agenda to board members well before the meeting, then stick to it. “The worst thing to do at a board meeting is spring a new topic on the group and then expect to get good feedback,” says Bliss.
DON'T have too many insiders attend the meetings. There's no need to have top salespeople and managers at the meetings; having too many people will make meetings chaotic.
DON'T let your advisory board become a strategic planning group. Instead, it should be the sounding board for the group of insiders that put together the strategic plan.
DO stay on topic and make sure that every one has spoken. If someone hasn't said too much on a topic, a good leader will say, “What are your thoughts on this?”
DO occasionally ask the group, “What questions should we have asked that we didn't ask?”
DO listen to what your advisors have to say.
BOARD OF ADVISORS VS. BOARD OF DIRECTORS
Although a board of advisors and a board of directors both provide advice and counsel, they're very different beasts. For starters, publicly owned companies are required to have a board of directors, but private companies are not.
“A board of a public company is a totally different animal than a board of a privately held company, which is advisory at best,” says Ed McGrath, former president of Graybar. As president of Graybar, McGrath was part of the public company's board of directors. Today, he's an advisory board member of privately held Omni Cable Corp., West Chester, Pa.
“In a publicly held company, the board really is overseeing the management of the company and directing rather broad policy,” says McGrath. Members on a board of directors are elected and have fiduciary responsibility to shareholders and the corporation, so they hold management accountable.
Most private companies that want the benefits of outside advice opt for an advisory board over a formal board of directors for several reasons, including fears of losing control in business decisions and the cost of securing board members and carrying directors' liability insurance, which can be pretty pricey.
“With a private company's advisory board, it's more of a doctor/patient relationship,” says McGrath. “It's consulting. It's advising. It's diagnosing. It's trying to work out something that is a regiment that the patient cannot only live with but succeed with.”