Outside expertise

When the phrase “board of directors” is uttered within a family-owned or closely-held business, the most common question that arises is: “Do we have to have one?”

According to Barry Graff, a consultant with RSM McGladrey, it’s a topic worth considering, especially if you’ll be transitioning the business to the next generation soon.

“You need to build confidence in the succession process and in what will come next for your family, your employees, your customers, your bankers/suppliers and for you,” Graff says.

Advisors or Directors?
Creating a board that brings outside expertise into your business is almost always a good idea. The question is: Should you opt for a board of directors or advisers?

A board of advisers, Graff says, has no legal authority over your business. In this incarnation, board members essentially “speak when spoken to.” The owner and management team can accept or reject the advice given.

A board of directors, however, can sometimes be held legally liable for decisions made about the company. They also have more power. A board of directors could elect to fire a CEO, for example. If this prospect gives you the jitters, it’s worth noting that board members serve at your discretion. They can’t take control of your business.

That brings up a big question business owners face: “Who should serve on the board?”

Seek out peers in similar, but noncompeting, businesses. Also consider principals in local companies you do business with.

Be prepared to compensate board members for the time they spend working on your behalf. Graff said these fees vary greatly, depending on the company, the scope of duties and the time involved. A very rough ballpark fee would be $1,000 per meeting, he says.

Step by Step
If creating a board is in your future, Graff recommends the following:

1. Form a council and use that forum to educate your family or executive team on the role shareholders play.
2. Decide on the compensation and the type of board you want.
3. Recruit outside directors and determine who in the family or shareholder group should be directors.
4. Make it clear how you’ll use the board (strategic planning, financial expertise, operations insight, etc.).
5. Begin to have regular board meetings.

If the process seems daunting or you’re having trouble getting “buy-in” from shareholders, consider contacting a consultant to help with the transition.

The author is managing editor of Garden Center.