A new entrepreneur starting a business needs a great deal of direction and helpful advice. After all, no entrepreneur can do it alone. In addition, depending if the new business form is a corporation or LLC, the business may be required to have a board by law. However, how does a new entrepreneur go about selecting a good board of directors?
Responsibilities of a Board
First, it is product to know what the board's responsibilities are. While the executive management team like the president, CEO, and CFO are all there to handle the day to day responsibilities of a company, the board is comprised of outside experts to help with the general and overall direction of the company.
The duties of the board are usually outlined in the Bylaws, and they generally consist of the following types of duties:
- Define a Mission - The board can help define the mission of the new business. Their expertise is vital in refining the main purpose of the company and setting that purpose into a written mission and overall goal.
- Approve CEO and Management - In most cases of an incorporated business, the board has authority to hire and approve the main management, including the CEO, CFO, and other top management.
- Financial Direction - When it comes to finances, the right board can offer sound financial advice for the direction of the new small business.
- Oversight - It is always a good idea to have the board as the "outside eyes" of the company and direct the oversight of strategic plans, ethics, policies, etc.
Qualities of a Good Board Member
What are the qualities of a good board member? Oftentimes, the board of a small business or corporation consists of friends, family, and trusted individuals. And when it comes down to it, you want a board that will be willing to put the time and effort into helping your business through both tough and easy times.
Here is a general list of desired qualities in a board of directors member:
- Experienced - Your board is there to offer advice and direction. Don't choose a board member simply because he or she is a friend or family member. Pick based on experience in analyzing information and making sound decisions.
- Competent - Your board should be competent for the purpose of your business. While it may seem desirable to have a real estate agent on your board, it may not do you any good if you need advice and direction in computer software engineering.
- Enthusiastic - You, of course, want a board full of members who are excited about your business prospects. Be sure your board is enthusiastic about helping your business succeed.
- Honest - A bunch of "yes men" are not helpful in setting up business strategy and direction. Find a board that is ready to be honest with their opinions.
Selecting Your Board
Unlike your family, you have the opportunity to pick and choose your board members! Do it like you were assembling the "dream team" of the Olympics. Choose wisely.
One important thing you will need to decide is whether your board will be compensated. Most larger corporations will generously pay their board members, including travel, room, and food allowance for meetings. However, in the case of smaller businesses, compensation may be interest or shares in the company or even just a catered meal during board meetings.
Some other nuggets to keep in mind during the selection of your board of directors include:
- Keep the board size manageable. Avoid selecting too large of a board of directors. Too many voices and opinions could keep your small business from moving forward.
- Find board members good at raising money. If your small business is still growing and needing financing, a board with contacts and experience with raising money could be a valuable addition.
- Complement existing management. A board that has similar temperaments, risk aversion (or taking), and enthusiasm can create great synergy with existing executive directors.
Remember, if your small business is incorporated, a board is required by law. Whether you are filling a required board or looking to help your existing small business with a board of directors, choose wisely. A well-chosen board will be a valuable asset to your company.