Almost eight years ago, my father-in-law asked me to lead the company that our family owns. The company, Onex, is an industrial furnace manufacturer located in the Rust Belt, primarily serving the forge and steel industries. Because the company had lost its way, a board of advisors was also put in place to hold leadership accountable.
When I accepted the general manager role, I had no idea what board governance meant or what reporting expectations were. I had no previous board experience, so I was in uncharted territory. Thank goodness a few Google searches gave me enough background to begin to understand a corporate structure that was once foreign to me.
You may be thinking, “I am a small manufacturer, and my business has been great for years. Why would I need a board of advisors?” As a small business owner, I can tell you from experience that it is important.
Manufacturing leaders wear many hats every day. For instance, I may be in the midst of a marketing post when a production issue arises that needs my immediate attention. I call this “working in the business.”
However, there are times when we as leaders must “work on the business.” I bet, if you are like me and most other manufacturers, you shy away from working on the business because you are too busy fighting the daily fires. Sometimes, you have to step away from the day-to-day because you cannot see the big picture. Preparing for a board meeting requires you to take the time to think about the big picture and future of your business.
Directors vs. Advisors
A large, publicly traded company’s board of directors has both fiduciary and legal obligations to uphold on behalf of all the stock shareholders. However, most small businesses will choose to have a board of advisors without the fiduciary and legal responsibilities of a board of directors. The board of advisors brings an independent level of accountability and stability to a company, without the bureaucratic tape.
Members of a board of advisors can also serve as mentors to help you and your business grow. Founders of small businesses often feel their business is like a child. The owner brought the business to life through their vision and hard work. The board of advisors provides the mentorship to help the company move from childhood to adulthood.
As Aristotle famously wrote, “The more you know, the more you realize you don’t know.”
So, should your small business have a board of directors or a board of advisors? My advice would be to start with a board of advisors unless your business is legally required to have a board of directors. You will benefit from hearing others’ advice on hard topics like implementing organizational culture change, hiring internally or externally to fulfill business needs, and guiding the next generation in succession planning.
Friends vs. Mentors
An outside advisory board may not be as helpful if you recruit your friends or other people close to you. To find advisors, you could start with Linkedin, or ask other leaders in the community or outside professionals you work with (such as your accountant, attorney or banker), if they know someone who may be good for the role. Interview the candidates just as you would a new employee, ensuring they are a good fit culturally in addition to their technical expertise.
You need your advisors to challenge you, not agree with you. They should provide you with different perspectives, according to their unique talents and strengths. The mission of your board is to scan the current environment, set strategic priorities and decide on the direction of the business.
So, who do you hire to be on your board? You should choose people with experience in different industries, and with varied histories, to lend new ideas and fresh perspectives to evolve the business. If you are trying to make a specific change or tackle a particular problem, find an advisor who has been there, done that. For example, if you want to implement lean manufacturing, find an advisor who has previous lean experience. Onex’s independent board members have been previous clients or vendors who have more industry knowledge than we do internally, so they are able to help us identify ways to grow the business based on client needs or supply chain gaps.
Board members play a significant role, contributing to the organization's culture, strategic focus, effectiveness and financial sustainability. Most importantly, they should have a deep passion for the success of the organization.
Planning versus Reporting
You have hired a diverse, enthusiastic board of advisors. Now what?
In order to get everyone on the same page, develop bylaws and term-limits. For a small company, three to five board members is likely enough, with term limits of two to five years.
Create a board compensation policy. Depending on the size of the company, some businesses pay board members an annual retainer of $25,000 or more. Smaller companies pay a flat fee per meeting from $1,000 to $2,500. In some cases, retired executives may agree to volunteer. In return, the role of your advisors is to ensure management is running the business effectively, providing a good return to the shareholders and making sure the corporate values are reflected in the business. Keep in mind, a board should always ensure the interests of all the stakeholders, not only the shareholders.
Best practices for quarterly board meetings include sending the board book with the current market conditions as well as the financial and operational performance out to members a week prior to the meeting, so your advisors may review the reports and be prepared with questions. Use your time in the meeting to focus on one or two strategic initiatives, so that you are able to use the members’ time wisely in gaining advice and knowledge to help you navigate the road ahead.
During a strategic planning session for a trade-organization board I sit on, the facilitator encouraged us to flip the agenda of our board meeting. He suggested that in order to make the best use of our time as board members, we should be actively engaged in strategic planning and not simply listening to a report out during each meeting.
Lessons Learned
When we started our board eight years ago, things were very different in the business. Onex was trailing the leaders in our industry. By planning, executing and evaluating our progress, we were able to become a leader in our industry. Our board of advisers provided us with outside, independent advice to navigate turbulent times and high-stakes, emotional decisions, and grow the company in a way that benefits all stakeholders.
If you are a family-owned business, you will find the board helpful in moderating the inevitable family disagreements on how to best run the business. Our board members serve as a voice of reason, without the emotion attached to the decision.
A well-chosen board of advisors will also hold you and your management team accountable to producing the requested, agreed-upon deliverables. There will be a slight pressure to complete the work before the next board meeting, and your business will become more organized and structured. With all the planning and accountability in place, the value of the company will likely increase, gaining the owner a return on their investment in a board of advisors.
Boards of advisors should partner with the business owner and leadership team, cheering them on in the good times and forcing them to make hard decisions when necessary.
The best news … You will no longer be lonely at the top. You will have a team to brainstorm ideas with and advisors to turn to when the business hits a rough patch along the journey.
Reflection: How could a board of advisors help your business reach new heights?
Ashleigh Walters is president of Onex and author of Leading with Grit and Grace.
