How do you decide? Featured

8:00pm EDT September 25, 2008

If there is a major decision to be made in your company, who makes that decision? As the owner, do you make all the decisions on your own? Odds are likely that prior to any major decision being made within a company, other people, advisers or experts are consulted.

For a public company, there is likely an advisory board in place for such major decision-making. Smaller businesses may not have such a formal board in place.

But, every company should seek outside advice and expertise. For the smallest companies it may simply be their accountant, lawyer or family friend.

“The key is to formalize the relationship and role to ensure that expectations are set so results can be achieved,” says David Janus III, president and CEO of FirstMerit Bank’s Cleveland region.

Smart Business spoke with Janus about the value an advisory board can add to a company and how such boards should be formalized.

What value can such an advisory board add to a privately owned company?

The advisory board acts as an informal executive management team, adding management depth and providing strategic and oversight breadth. An effective advisory board shapes and challenges management’s goals, holds management accountable, and lends critical thinking to guide strategic direction and resolve problems. An effective board works to position a company to continuously improve its performance over time.

What is the risk for a privately held company if there is not an advisory board?

A company without outside advice risks insulating it from important perspectives that may grow or increase its franchise value. Fresh ideas and creative thinking is necessary to keep a company flourishing. Outsiders from other industries with different skills and professional experience lend critical insight that can make the business more competitive and effective.

Who should be selected to make up the advisory board?

The board should be made of a broad group of professionals who can be critical and constructive. Avoid constructing advisory boards filled with friends who will always support the owner regardless of results.

Paid advisers, such as the company’s accountant and lawyer, have a vested interest in the success of the firm and are deeply knowledgeable about the company. It is also valuable to add others without an intimate knowledge of the company who bring different skill sets that can aid the company operationally and strategically.

Chemistry among the board is also important. The board must be committed to the company’s success. And, if you are paying your board members, make sure you are holding them accountable and getting your money’s worth.

On what aspects of the company and operations should a board provide advice?

The board should focus on higher-level strategic goals and objectives while management handles the day-to-day details. A financial and operational scorecard can direct the board’s attention to problem areas. If problems persist, the board is responsible to challenge the owner and to suggest solutions.

Why don’t all companies have advisory boards?

There are a number of reasons. Some owners feel that they alone know the business and should make the decisions. Other owners may choose to consult with friends or hire professionals, such as accountants, lawyers and bankers, at times of conflict. Family-owned businesses may run entirely by the decisions of family members.

An advisory board can be crucial to the growth and success of a business. There is vast talent and knowledge available to business owners from individuals with experience in diverse businesses and industries. If you can tap into an extended knowledge pool to better your company, why wouldn’t you do it?

DAVID JANUS III is the president and CEO of FirstMerit Bank’s Cleveland region. Reach him at david.janus@firstmerit.com or (216) 694-5658.