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SMART ANSWERS
By Karen E. Klein
JANUARY 27, 2000


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Q: I am a partner in a cosmetics startup that is based on a new technology. Our board is a diverse group, but I feel we still need an individual who has special knowledge of our industry. How can we attract someone?
—P.C., Miami

A: Obviously, you can't have a competitor on your board of directors or advisory board, but you may be able to find someone who formerly worked in your industry, developed some expertise, and moved on to another field. Or you might seek out someone who has retired or is taking a backseat in a company that is also in cosmetics but not a direct competitor of yours.

Since presentation is such an integral part of cosmetics marketing, consider someone who specializes in cosmetics products at one of the big packaging companies. If you have a promising company, you'll probably have little difficulty finding someone to join your board, says John P. Delmatoff, president of PathFinder Coaching in Diamond Bar, Calif. "You may be pleasantly surprised to find someone in their 50s or 60s who is in 'give-back' mode and might be very pleased to enter it and receive compensation. It's simply a matter of targeting some individuals by letter, third-party introduction, or telephone call," Delmatoff says. You might ask the vendors who supply your company for recommendations.

HEALTHY DISAGREEMENT. You don't specify whether you're talking about a board of directors or an advisory board. Either way, experts recommend starting with between five and seven members. If you must increase the board size, do it slowly, since it's easier to add seats than cut them. Find individuals who bring some special skill to the table, says Robin Cornwall, a business analyst at the University of Southern California's Business Expansion Network. "You might want someone with a legal — not to provide a legal opinion, but to warn the board when it is getting into areas that might need the help of outside counsel," he says. "Perhaps you'll want a CPA on the board because he or she understands cash management and will recognize trends, good or bad, that might be overlooked by management. Other choices...could be people who have expertise in areas such as sales and marketing, advertising, production, etc."

A board of directors, which has legal standing and a fiduciary duty to the company, should be protected from liability by errors and omissions insurance, Delmatoff says. Their purpose is to set policy, represent shareholders in a public company, and provide guidance to the company's management team. Nonemployees who sit on a board of directors may or may not own stock or have the chance to acquire it. They may be paid for attending meetings or just reimbursed for expenses, Cornwall says. And they may not agree on every issue — in fact, it may be better if they don't. "It isn't important that your board members love each other. It is important, though, that they respect and work with each other. Even the most brilliant businessperson is of no use to you if he or she can't work with the rest of the members of the board," Cornwall says.

An advisory board gives advice to the CEO but doesn't have legal standing in a company. "An entrepreneur should ask him or herself what is the good of an advisory board. Do you want them to make you feel good or to give you objective guidance? What will you do when their advice goes counter to what you want to do?" Delmatoff asks.

Advisory boards are usually composed of experienced outsiders, perhaps CEOs of larger companies in different industries, says Eric Flamholtz, professor of management at the University of California at Los Angeles and president of Management Systems Consulting Corp. in Westwood, Calif. They may meet four or more times a year and typically go on an annual retreat, often held at a desirable location, where they review the company's strategic plan. "Compensation varies all over the place, and it can be relatively minimal," Flamholtz says. "Usually they get an honorarium of sorts, such as an annual retainer, along with expenses, or sometimes a special payment for each meeting they attend. This fee may be $8,000 or $10,000 annually, or it could be more than $100,000. They may get stock options. They are expected to read the company's materials and be prepared and available for discussion, and sometimes serve on special committees."


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