Board of Directors - Getting Added Value
Corporate Board of Directors can add significant value to companies, especially for start-ups and hyper growth companies. The expertise and contacts that Directors can bring add significantly to the financial and intellectual power available to a growing company. In fact many experts recommend that board members should be chosen both for the skills and business experience they bring.
For early stage companies prior to IPO investors may require one or more seats on the board to increase provide shareholder value with the company. Investors, whether they are individuals, representatives of venture firms or investment banks, become interested participants in the process of growing a company. For management teams looking for funding, care should be taken to ensure that any investor brings additional value other than just money to the relationship.
Creating a board and adding outside directors can change the dynamics of how a company is run. Nearly all companies can benefit from the involvement of qualified independent directors--and the sooner the better. Although advice from insiders can be valuable, it often reflects a narrow perspective--one company, one industry, as well as one set of issues and challenges. One big problem for strong leaders is that they develop people who tell them what they want to hear and not what they need to hear. This affliction is called \"founders ego.\" One way to counteract this natural trend and increase the strength of your company is with outside directors.
Besides fulfilling the basic duties of a board member, additional and critical value can be added to help grow their companies. For example if you are about to enter into an acquisition you may want a board member who has not only been part of one, but made them successful (as of 2008 roughly 75% of all mergers fail to achieve their intended results). Key value-added benefits include expertise in relevant technologies, markets and other areas:
- Strategy development
- Additional outside expertise
- Additional investors and syndication partners
- Attract other stakeholders and management talent
- Provide contacts /access to information, people, institutions
- Identify suitable alliances, partnerships, acquisitions
- Key contacts with major new customers
- Access to key technologies and trading partners
Critical for new start-up and expanding companies, besides \"seasoned leadership,\" board members can provide valuable help in growth but also in developing and executing exit or harvest strategies:
- Sale
- IPO
- Merger
- Liquidation
- Lifestyle income/capital cow harvesting
- Succession planning and execution
- Exit and build a new venture
- Joint ventures and alliances
- Employee Stock Option Plans (ESOPs)
- Leveraged or Management Buy Outs (LBO, MBO)
With outside directors as active participants and advisors to the business the entrepreneurial stress is spread among the entire team of management and the board. The outside directors can add value not only their expertise and contacts, but they can also add sound judgment, encouragement and inspiration. Recognizing this potential value may be harder if the focus is just on getting investors, but CEOs will do well to remember that few investors are truly passive and if someone is going to be involved, they might as well add value also.
Just as investors interview companies seeking funding, the company should be interviewing the investors to see what added value they can bring to the company. So besides checking personality and strategy fits, investors, especially those who require board seats to invest, should interviewed for business benefits also. This can greatly augment and even fill gaps in the existing board and management teams.
Copyright 2008 Donald C. Mann. All rights reserved
Don Mann is CEO of RiteMann Consulting Inc.; a company that helps businesses grow to the next level and beyond with improved sales, profits, cash flow, people effectiveness and innovation. Don is located near Wilmington DE.
He has delivered level-raising results in organizations ranging from start-ups to Fortune 100 by leveraging best practices across industries. This includes global businesses in financial services, manufacturing, chemicals, distribution and high technology, and well as governmental, military and community organizations. His results include developing and improving highly productive and lean organizations with improved sales and profits, more rapid responsiveness, reduced stress and renewed focus on customer delight.
To contact Don go to http://www.RiteMann.com
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