The reasons for a traditional board of directors are manifold. They are monied. They are connected to people with more money. They have wisdom and ideas that will guide the company towards money. They hold experience in developing financial instruments, and, of course, they are often linked to firms that may provide investment money.
Today, however, company boards are being asked to look at more than the bottom line. Membership is solicited less on the old boy network, and more on a specific skill set match. At the same time, the plague of board micromanagement must be kept at bay.
To explain these new standards and methods of operation, the New Jersey Technology Council offers its latest CEO Forum, “Managing a Board of Directors,” on Wednesday, January 12, at 8:30 a.m. at the offices of the Edison Venture Fund, 1009 Lenox Drive. Cost: $25. Visit www.njtc.org.
#b#Joe Allegra#/b#, general partner at Edison, and #b#Jim Bourke#/b#, partner with Withum-Smith+Brown are the moderators. Panelists include #b#Ron Berg#/b#, former CEO of RadPharm; #b#Frank Musto#/b#, vice-president and CFO of Franklin Electric Publishers; #b#Emilio Ragosa#/b#, partner at Morgan Lewis; and #b#Gordon Rapkin#/b#, CEO of Archive Systems.
Allegra’s own CEO experience came by outstripping the available software technology several times throughout his career. A native of Hathworne, Allegra attended Rutgers, graduating in 1975 with a major in economics and a minor in the burgeoning field of computer science. He worked in the technical branch of McDonald Douglas Aircraft and in 1977 moved on to Applied Data Research, where he spent several years developing pioneering software.
Allegra then earned his MBA from New York University’s Stern School of Business. In 1989 Allegra co-founded Princeton Softech, which developed databases for major corporations.
He sold the firm in 1998 and remained at the helm until 2000. The next year Allegra joined Edison Venture fund, where he currently sits on the board. He has to date sat on 20 corporate boards of directors.
“Board building all begins with corporate assessment,” says Allegra. “You are looking to get as much good advice, in the right areas, and from as many smart, experienced people as possible.”
#b#The few, the chosen#/b#. As a startup, management is given the cautious opportunity of selecting its board. Allegra’s simple rule of thumb is to look for people who have already done well what you need to be doing. Part of this involves bringing aboard experts to help with weak areas.
For the firm with little sales management experience, a veteran sales director on the board could certainly provide much-needed advice. But be wary. You are not hiring staff here. Board members should not be courted to fill short-term gaps where consultants or a good recruiter could do just as well.
“Remember,” says Allegra, “directors are there to keep lifting management’s eyes up — moving it toward the long term and toward the future.” Thus while you may seek to vary the skills of your directors, each must hold a solid knowledge of your firm’s longterm financial process as well as applicable fiscal strategies for sale and exit.
Many companies, both established and new, have begun setting up boards of advisors. While directors frequently have some sort of investment in the company and leverage that investment to mandate the company’s course, advisory boards merely suggest. Advisors are mediators, proposing the most beneficial actions they see for the firm. Directors, with more skin in the game, can afford to be more arbitrary.
Both are viable options. Many are the startups that launch with advisory boards at their sides, and as they expand, bring on boards of directors, having them both operate simultaneously. Just remember, advisors typically belong to other companies and are providing uncompensated (or honorarium-paid) advice. CEOs must consider how much careful consideration these advisors are giving to their problems.
“One of the biggest mistakes,” warns Allegra, “is soliciting celebrity board members. They just never bring the benefits you expect them to.” Lenders are only mildly concerned with the board, he notes. Venture capital companies’ primary interest is with the management team. The board is a minor concern. Likewise, customers — the people who pay for your business — really are less impressed by who sits on the board than the product being offered.
#b#Steering the ship#/b#. “The more you communicate with your board, the more value you will get out of them,” says Allegra. “Monthly dashboards keep them totally involved. And report to them more than once a month when the news is not good.”
This does not mean that management should lay every little glitch and success on the board table. That is the surest way to disengage good board members and invite micromanagement by mediocre ones. Ideally, director meetings are gatherings of visionaries charting the long course. To make this ideal a reality, Allegra suggests that CEOs bring a handful of tough, key issues for the board to gnaw over at each meeting. If it’s a short-range problem, tie it to a long-range outcome.
“For management’s tactical survival, it’s a matter of knowing what information to keep and what to throw overboard,” says Allegra. His favorite tips on this include:
* Be honest. Make no promises you cannot keep.
* Send out the board packages well ahead of time so that meetings review major priorities and not operational details.
* Remember that the board wants to see data in a certain way, which often differs from the way management shares it with each other. Find what methods work for your board members.
Bad news is inevitable, but if management has built up a good working interaction with the directors it will not wince at each upcoming meeting. If you share problems early on, you may be able to present them up as more of a warning than a disaster.
The balancing act is invariably delicate, often wrought with personal power struggles. But if welded into a well coordinated team, the board directors and company management can definitely power the corporate ship profitably forward.