My column in this week’s Tennessean examines the importance of advisory boards.
There was a time when outside members serving on the board of directors of small businesses was fairly common. The entrepreneur would invite people such as his banker, consultants, their attorney, their CPA, and other business owners from the community to serve on the board.
But with the advent of the limited-liability corporation and its more flexible structure, and with the general increase in litigation involving members of corporate boards, adding outside members on boards of directors has become less common.
However, outside advisers can bring important benefits to a small, growing company.
There are two boards to distinguish between as the legal differences are important (note that I am not a lawyer and this is by no means advice)
The traditional board is the board of directors. These individuals will usually have some form of legally binding influence to the business. Traditionally they have the ability to vote out a CEO for example. Much of what can and can’t be done is written into the legal structure, so an attorney would be the best place to seek more information on this.
The second type of board which is more and more common (at least during the startup phases) is the board of advisers. This group does note have voting rights. None the less they have agreed to meet regularly to help guide the business, or the entrepreneur, with their wisdom and experience.
Both groups are great for bringing in outside experience. Both can provide network benefits (referring customers or employees) and both require some form of compensation depending on how much they are involved (such as stock during a public offering or some really good dinners…)
Both are useful at different stages in a companies life and should be given some thought. They are also a really good way to get influencial individuals involved that otherwise would not.