Making the Impossible Possible
While it is intellectually easy to “buy-in” to the importance of having highly qualified individuals on the corporate Board of Directors representing financial, legal, operational, sales and strategic skills, assembling and affording this Board is a very different issue.
First, let’s qualify the importance of a highly
qualified Board. No one understands the importance of this corporate
resource more than a venture capitalist who is putting significant sums of money at risk with the knowledge that the investment will be lost if the right leadership is not available to formulate and implement a plan of success. The following dissertation by a noted venture capitalist models the importance and the content of an effective Board.
How to Build Your Board of Directors
By Mike Frank, General Partner, Advanced Technology Ventures
It’s not easy building a high tech startup. But here’s a tip: When choosing your Board, take the time and energy to make solid choices. Picking the right players for your Board is critical for your company’s success and will save you many headaches down the road. Here are some suggestions to make sure your Board is a good one:
View the Board of Directors as an independent body.
One of the most common mistakes made by entrepreneurs is to “stack” the board with members friendly to their cause. While it may be comforting to know that your position is “secure” regardless of how well or poorly you are executing your duties, it deprives you of the opportunity for an honest, independent performance appraisal. An independent board is in the best position to take an unbiased view of the company’s and the CEO’s performance.
Compose the Board of Directors of outside members only.
Sensitive issues arise in any company. Some of them may be related to the performance of key executives or the CEO him/herself. Others may be directly related to the future of the company, i.e., succession issues, financing alternatives or merger/acquisitions. These issues are best handled when the CEO is able to speak freely with his Board and seek advice without other members of the management team present. A board with too many representatives from management, in our experience, is far less effective and often results in second-guessing and behind-the-scenes discussions and maneuvering.
Seek a balance of skills on the Board.
If you raise money from professional venture capital investors, they will usually request a board seat to look after their investment. Most reputable venture capitalists have experience in serving on multiple boards and can be of substantial value to your company. However, they are not likely to be experts in your specific line of business. Seek to balance the board’s composition by adding someone with experience in your market segment. In addition, make sure to include one director with a strong financial background and another who is the CEO or VP Marketing of a successful company in a complementary business segment. These people can provide insight not only on issues specific to your company, but also provide a broader perspective on industry trends, etc.
Communicate frequently with the Board members.
A Board will function best when it is prepared, i.e., the members are up-to-date on the state of company and have had time to think through the major issues. One of the worst mistakes for an entrepreneur is to surface major bad or unexpected news during a Board Meeting. This forces Board members into a reactive posture and doesn’t give them adequate time to reflect upon appropriate alternatives. We always encourage the CEOs of our portfolio companies to call all Directors beforehand with a brief overview of the major topics to be covered at the Board meeting. If possible, provide all Board members with necessary materials for review well in advance of the meeting.
Actively seek involvement of the Board.
Too many companies view their Board as window dressing and board meetings as a nuisance in which the management gives carefully rehearsed “dog and pony shows.” Qualified board members have a wealth of contacts that the CEO can and should tap into, whether it is potential customers, partners or additional investors. Outside board members can be effective in evaluating the company’s strategy and a valuable resource in recruiting other members to the management team. Don’t hesitate to ask and insist on their involvement in specific issues. If board members are unable or unwilling to spend the time necessary to help the company and/or CEO, they shouldn’t be on the board in the first place.
Listen to advice from the Board.
The Board of Directors is a legal structure that provides a fiduciary oversight of a company on behalf of all shareholders. Most of the time the Board will agree with the strategy and actions proposed by the management. Sometimes, however, the Board may disagree and even insist on a course of action that is different from the one proposed by the CEO and the management team. Heed the advice of your Board members. They are not after your job, but are merely doing what is, in their judgment, in the best interest of the company and its shareholders.
If you treat your Board of Directors as an adversary who needs to be overpowered and controlled, you miss out on the value they can provide. But if you see them as an ally, you’ll be able to tap into a significant resource base with a tremendous pay-off to you and your company.
Assuming there is no disagreement about the importance of a strong, highly-qualified board, the next question is how the typical alarm industry company can afford this level of support. Attorneys, accountants and consultants regularly command fees of $350.00 an hour or more. A total of five outside Board members at a cost of $3,000.00 each per meeting plus average expenses of $500.00 per member equals a cost of $17,000.00 per Board Meeting. Multiply that by three meeting per year and the total is $51,000.00. Add to that an average of one hour per week consulting (by telephone) with varying Board members to obtain the critical guidance and feedback necessary to stay on track and costs are increased by another $15,000.00. The combined cost of $66,000.00 per year is impossible for many companies to afford.
Davis Group has a plan for making the impossible possible.
First, as a result of many years of consulting at the highest levels in the security industry, Davis Group principals have the wherewithal to attract the ideal Board of Director members (not likely duplicated by individual companies). Second, by advance preparation and a highly focused agenda, the cost of assembling the Advisory Board for back-to-back days can be shared across multiple clients (typically, there would be two or three board meetings each day). The end result is that each client has the benefit of on-site (your office) overviews, three Advisory Board Meetings per year and 50 hours of consulting time with some of the most recognizable and respected names in the security industry for a fraction of the cost of forming your own Board. Davis Group is able to provide clients this unique service for $25,000.00 per year (costs can be spread across the term of the agreement).