Dr. Earl R. Smith II

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21 Responses to “Boards of Directors – Useful or Not?”
1.
July 12th, 2007 at 10:37 pm e
Juha Harkonen: I beleive that boards are a great asset to the owners and operative management. What I do not beleive in is the value of professional board members and early stage investors, who hold positions for years.
Companies go through growth phases and each phase requires a unique skills set. Owners should atleast partially rotate board rosters to gain new insights and speciality skills related to the company’s growth face. Fund rasing, public listing, international growth, etc. these are all phases that need speciality skills.
2.
July 12th, 2007 at 10:38 pm e
Erich Nielsen: that depends on the role defined by the owners, which raises the question of who is the ultimate decision maker of the legal entity…
If the board is performing its mission as the owner’s representative, it should be nothing more than an assett. But this can become a problem in the SMB/SME section, where the BoD sometimes can be (or be perceived as) a front.
3.
July 12th, 2007 at 10:39 pm e
Chris Warrender: They can be a huge asset if they are chosen well rather than forced upon one’s company via the investment rounds.
After a while the investor members of the board will sometimes have a different game plan and sometimes that is not for the overall benefit of the company, but rather just for the initial investors.
I also believe in a board of advisers too – that has a representative on a BoD. Especially when well chosen and you get good solid experience not only in start-up mode but in the transition from start-up to young pre-IPO company and on.
4.
July 12th, 2007 at 10:39 pm e
Donnie Davis: My experience with early stage companies and Boards populated by Angel or Early-Stage Institutional Investors, is that they all have the “Go For the Brass Ring Syndrome”. It seems the mantra is 400-500% growth or death. Their experience is sound. Their intentions are, for the most part, good. The tactic that needs examination is rapid growth without a sound infrastruture that can support growth…..they all seem to be building large, hollow companies that will allow a quick exit and a fast buck…..good for the investors but, bad for everyone else…..
5.
July 12th, 2007 at 10:39 pm e
Hedva Sanderovitz: Board members can (and should be) a real asset. They should be experienced, committed and ready to spend time and share their knowledge. If they do it, and I think you should try to select them based on this, then they will metor and guide you and use their connections to help the company.
6.
July 12th, 2007 at 10:40 pm e
Stephen Gailey: The role of the board is to run the company for the shareholders. In a “For profit” company they should be building shareholder value. In the Anglo-Saxon model there is a single board with a number of board committees to cover remuneration, audit etc. The European model has an oversight and a management board. It’s hard to ask if a board of directors is useful without considering what other model you would use. As you need to direct the company (as opposed to just manage it) a board of directors is not useful but essential. Of course the effectiveness of boards varies and it is the responsibility of the Chairman to manage this.
7.
July 12th, 2007 at 10:40 pm e
Krista Kieser: Board of Directors….so valuable in my opinion! The key is to have a diverse board and not a board where everyone is close-knit, best friends and have strong ties to each other. I have seen weak boards and I have seen strong ones. The strong ones seem to be more diversified and that really reflects on the growth, the overall strength of the organization.
8.
July 12th, 2007 at 10:40 pm e
Gary Markin: A board should always be an asset (should being the operative word). Ensuring effective communications and appropriate alignment will ensure that the board is effective. Unfortunately, especially in the case of small and mid sized businesses, this often is not done.
Also, there tends to be quite a bit of confusion relative to the role of a BoD and Advisory Board. While there can be overlap in roles, there is a fiduciary difference which must be understood.
9.
July 12th, 2007 at 10:41 pm e
Frank Hurtte:
10.
July 12th, 2007 at 10:41 pm e
Max Roesler: There is a difference in boards. In a start-up, your board members are typically dictated by your investors. And this is NOT good. You end up with a board that is consumed with accountability. And accountability is only one part of the job. No more than 1/3 of the board’s effort should be spent on accountability issues. If it needs to be more, then you have the wrong CEO/management team. The other 2/3 (should be more, but 2/3 is a hard minumum) should be spent on strategic direction, and strategic accountability. That is, making sure the company’s direction is faithful to the plan while also adjusting to conditions.
If you can pick your board members, or influence their commitments, then I’d consider the following:
1. Set expectations for your board members and formalize them. If an investor says “we want to put Joe Bagadonuts on your board because his industry contacts will open a lot of doors for you”… Then your response should be “great, before we vote him on, let’s meet with him, go through his rolodex, and agree to a contact plan with each of his industry contacts.” The claims are usually a lot bigger than the actions, so ask for commitments up front. If they aren’t willing to commit to actions with a handshake, instead of an informal verbal claim, then there’s your warning.
2. In a smaller company, as the CEO, chair your own board. By being the meeting facilitator and setting the agenda, it gives you more power to say “OK, let’s move on” when some board members go down the rabbit holes they sometimes go down.
3. Board members need to commit to a minimum number of hours to the company. Just showing up at the meeting, collecting a stipend, and leaving is of little use to the company. If you aren’t willing to do several hors of homework, research, reading, and promotion between board meetings, then don’t sit on the board.
11.
July 12th, 2007 at 10:41 pm e
Riad Baghbanli: I think board of directors is very useful if it consists of long-term stakeholders (or their direct representatives) who altogether control majority of the stocks.
If majority of company stocks are owned by large number of very small investors, then board of directors will not be effective as it very often plays the role of rubber stamp mechanism for CEO.
12.
July 12th, 2007 at 10:42 pm e
Ayana Kimron: Can be an asset, should be an asset, not always functions as an asset.
Question for you – what is your criteria according to which one would claim that BoD is a liability (or asset)?
We need to be careful with the definitions because it is very easy to blame others for failing strategies.
13.
July 12th, 2007 at 10:42 pm e
Gabriel Field: As long as the board is advisory in nature, and has a strong leader who makes the final decision, the system works well.
14.
July 12th, 2007 at 10:43 pm e
Sheilah Etheridge: For the most part I believe the BoD can be an asset. But it is important to ensure the people chosen are a good mix and have the ability to get things done.
15.
July 12th, 2007 at 10:43 pm e
Furqan Nazeeri: Pascal Levensohn has a blog that includes posts on Boards. He’s also chaired a committee that’s put together some research on what makes an effective board / board member.
Also, my friend Prof. Noam Wasserman has a blog on issues related to founders and posts frequently on issues relating to boards. I highly recommend Noam’s blog.
In my personal experience boards are both “assets” and “liabilities” but have a postive “net worth.” The more I put in, the more I get out, which is true of every relationship personal or professional.
16.
July 12th, 2007 at 10:43 pm e
Prakash Gupta: A Well Chosen Board can leverage your company, in attaining bigger goals, reaching bigger boardrooms, and access to bigger companies. Just make sure you always have the controlling interest (51% +).
I would definitely go for a well rounded BoD that your company wants to target viz., an attorney, a CPA, an Investor, a senior level manager at a fortune 500
17.
July 12th, 2007 at 10:44 pm e
Todd Bell: I would highly recommend you joining a board if you are looking to expand your career porfolio. I currently serve on two public utility board of directors and I have attained experience that goes outside of the “typical” executive job in a corporation.
I would caution to make sure you have a very good Board of Director insurance policy since suing companies for poor stock performance is a the trend. Be especially careful to look at the exclusions of the policy to protect your best interests.
I am wanting to transition to a public company myself in the near-term. I would be flattered if you where asked to join.
18.
July 12th, 2007 at 10:44 pm e
Ahmed Osman: Yes very useful…Personally, my experience in the startup world has shown that the right board members can open many doors and can significantly contribute to the growth of the company.
19.
July 12th, 2007 at 10:45 pm e
Rob Hill: Having a board of directors is no more a hindrance than not having one, and not having one is no more of an asset than having one. In other words, the board of directors is only as good as the people who are on it and the executives who serve it. Look at any model you want: outside directors, inside directors, paid directors, unpaid directors, European-Anglo-Saxon-once-removed-on-your-mother’s-side modeled directors, etc. it still comes down to the personal integrity of the individuals (and usually that mans the individuals in senior management).
When a corporation brags that it beats each quarterly estimate by $1.00 they might as well shout “we’re really good at cooking the books” in their next analyst conference call. When a company begins acquiring wildly disparate companies they make oversight nearly impossible for any board.
Of course, it’s only fair to mention that when no one from the board shows up for a shareholder meeting you can bet the problem extends well beyond senior management.
That is not to say that incentives don’t work (or “disincentives” for that matter). They do work, and by that I mean that they “help”. Sure, a sensible, well-reasoned model should be employed when setting up a board of directors, but that much you can get out of a book. Men and women of integrity who have the time, resources and desire to serve are the key to a useful board (assuming that “integrity” is actually “useful” – just ask Al Dunlap.)
See Harvard Business Review “What Makes great Boards Great” by Jeffrey A. Sonnenfeld (September 2002)
20.
July 12th, 2007 at 10:45 pm e
Abhinav Gupta: Very useful for networking; for bringing the expertise on board.
Net net, brings in confidence that you have people of repute with you – now it’s upto you to capitalize in best way possible!
21.
July 12th, 2007 at 10:45 pm e
Aaron Melville: I guess it really depends on the situation. I won’t pretend to be very knowledgeable about large corporate boards, but I am on the board of a local not-for-profit with about $1.2 million in revenue every year. I am sure there are similarities that cut across both the not-for-profit and for profit world. I believe that the board is invaluable for the organization. Board members help set direction. They are also a great sounding board for the Executive Director/President to bounce ideas off of. And boards have a fiduciary obligation to act in the best interest of the organization. At times it is necessary for the board to make a tough decision when management is either incapable or unwilling to do so.
The problem with many modern boards is that the group think bogs them down. Members often are hesitant to speak out agains a policy or choices that are harmful to the organization. The best board members I know are active.
On that note if anyone wants a board member I am willing to serve.