Situation: A private company has a Board of Directors that functions more as an Advisory Board than a traditional Board. For example, they do not have the power to fire or replace the CEO. The CEO wants feedback on how to interact with the Board, and how to work with them between meetings. How do you make the best use of your Board?
Advice from the CEOs:
Decide what you want from the Board, and clearly communicate this to the Members.
Treat the Board as a single entity – not as individuals. Avoid politicking individual members between meetings. Use the Board to drive decisions.
At your next Board meeting have a discussion with the Board:
Let the members know that you are concerned about whether you are using them effectively as a resource.
Lay out strategic elements to be dealt with over next period, and ask for their advice.
For example, if you are moving into a new market you need advice on how to succeed. Are they the right group to provide this advice? If not, what other expertise should be added to the Board?
Consider having this conversation in a special session of the Board.
Bring in expertise – if your industry has shifted, adjust the make-up of the Board to reflect the new realities. If you need to raise capital, look for expertise in this area.
Eliminate less productive members from the Board.
If you are looking at a new market, build an Advisory Board that is knowledgeable about this space, but who are not necessarily customers. Consider retired executives from companies in this market.
Additional needs that you might want to address either through your Board or an Advisory Board:
Financial expertise in new markets.
Where should you partner to make a complete offering or to supplement your offering?
Another CEO has a similar Board situation. In this case, the CEO makes it clear that Board members are expected to:
Assist in bringing in business.
Members are expected either to produce or they are off the Board.
Meetings are driven to a specific agenda with expectations of deliverables.
Situation: A company has been advised to augment their Board of Directors. The principal objective is to access mentorship and advice, particularly in the areas of gaining critical mass and marketing. How do you select and pay Board members?
Advice from the CEOs:
If the principal needs are mentorship and advice in growth and marketing, pursue an Advisory Board first. Compensation for Advisory Board members is much lower and saves the need to purchase expensive Directors and Officers Insurance for Board Members. If, in the future, you decide to expand your Board, you can elevate your best Advisory Board members to your Board.
Offer Advisory Board members one-year service commitments. Particularly if the company is early-stage needs may change rapidly.
As to specific members, select Board members who will help you hold the company to its vision and mission, including a member who offers financial advice and experience for the CFO, a resources and benefits expert, and industry leaders. Align these selections with the business model of the company.
If your patent portfolio is a critical asset, consider an attorney with experience in infringement issues – as distinct from expertise in IP.
Compensation for Advisory Board or BOD members need not be uniform. Key advisors often are compensated more than strategic advisors. Enthusiasts may serve as advisors for free.
Stock compensation for Board members may be as low as 1%, pre-funding. They will be diluted as you go through successive rounds of funding. You may offer your chairperson more than regular members.
Situation: A company has a high-powered Board of Directors. This Board is focused primarily on company strategy. The CEO wants to create a separate Advisory Board for technical and business development. How do you create and leverage an Advisory Board for technical and business development?
Advice from the CEOs:
Be clear on the role and compensation of the Advisory Board.
Create a clear set of expectations to initiate the process, and refine these expectations in early meetings of the Advisory Board.
Early stage companies often pay out of pocket expenses for attending Advisory Board meetings, plus stock options. When business development is the focus, you may want to add a percentage of any new business brought to the company by the member.
More mature companies may add a stipend for Advisory Board service.
Not all Advisory Board members may be compensated equally, particularly if members receive a percentage of business that they help to create. You may also choose to compensate members differently based on their experience and influence.
Choose Advisory Board members carefully.
Go beyond personal contacts of the CEO and company officers. Look for individuals who are known and respected within the industry. You also want individuals who have exceptional contacts and who will agree to use them to benefit you.
Look for individuals who are highly positioned within target companies – for example a VP of Operations or of Business Development. Also look for individuals who have excellent relationships with personnel in target companies
Be open and clear about your expectations of individual Advisory Board members. Celebrate success.
Establish metrics that the members are expected to fulfill.
Record commitments made by Advisory Board members and include updates against commitments as part of Advisory Board meetings, as well as updates against metrics that expected of members.
Celebrate successes of Advisory Board members and note individual and team contributions whenever the Advisory Board meets.