Board of Directors and Board of Advisors
While every public company has a formal board of directors elected by the corporation’s shareholders, many private companies lack a formal board of directors governing organizational decision making. A board of director’s work for the company and shareholders overseeing the major strategic decisions, e.g. managing the CEO, approving major financings and acquisitions, and most importantly providing gravitas fiduciary management and furthering the best interests of shareholders.
If your business already has a board of directors you understand a board of director’s value, but if not, why should your company have a board of directors? Most closely held corporations shy from forming a formal board of directors because 1) they want sole control of management decisions 2) it makes decision making burdensome 3) it is an additional expense. These can be valid arguments, but should be weighted against the advantages.
A board of directors 1) establishes accountability to individual and collective shareholders 2) provides valuable balanced and objective advice and guidance to corporate management 3) is a hallmark of integral corporate management to customers, employees, and vendors.
Uncompromising fiduciary responsibility is integral to a board of directors. Fiduciary responsibility requires competent, unbiased, equitable decision signatures. Governing directors should be independent from the corporate organization. A group of directors should be small enough to manage, i.e. 5-10 members, but large enough to contain diversity that provides insight into management areas where internal resources have a short longitudinal knowledge ribbon, i.e. directors should have more than a depth of specific technical expertise; directors should comprise a diversity of talent and knowledge.
Yet, directors should all have something in common: the values of the organizational culture. Directors, with the CEO, set the corporate tone, and it is vital that they share common values of the culture they are responsible for. The most important values they must share: integrity and reputation – a good name.
A board of directors contributes in significant ways to a corporate organization. While a closely held corporation may have a depth of experience in daily management and technical experience, it is uncommonly rare that the CEO is versed on building a business, managing economic and financial risk, while simultaneously developing a business asset or planning succession. A well developed board of directors can guide your business with proper planning and a breadth of expertise to even greater achievement.
A board of advisors differs from a board of directors in that directors are authorized to vote on company decision making. Advisors are not authorized to vote but can advise on decisions. Advisors advise. Directors govern. Advisors can sit in on board meetings but they lack the authority to vote on decisions that govern the corporation. Advisors do not make corporate decisions, but provide unbiased advice to directors or a CEO on decision policy.
If you are hesitant to form a board of directors or advisors for your business, maybe linking with an advisory board roundtable is for you. Advisory board roundtables provide a collaborative atmosphere to discuss business decisions and develop key personnel, e.g. assist a CEO or CFO to incorporate and hone organizational talent and opportunity.
Whether a board of directors, board of advisors, or advisory board roundtable, and a confidential group of truly trusted advisors will help your business accomplish more.