How to maintain an effective board of directors Featured

7:00pm EDT December 26, 2010

It takes many people to make a company run. Owners, management and employees all make companies successful. Another important group in any company is the board of directors.

Boards have many responsibilities, including providing continuity for the organization, selecting and appointing a chief executive, governing the organization with policies and objectives, and acquiring sufficient resources for the company to operate. Effective boards can help your company to run properly and be successful.

“An effective board brings an outside perspective for the owners and management who are typically caught up in the day-to-day operations and running the company,” says Jim Bechtel, CPA, director, assurance and business advisory services with GBQ Partners LLC. “Board members can bring in their best practices and experiences from their own companies or involvement on other boards.

Smart Business spoke with Bechtel about how to make sure your board of directors is effective and the qualities of a good board member.

What makes a board effective?

The board needs to provide an outside perspective on the company’s issues and challenges and supplement the talents of the owners and management.

As an owner, you need to remember to listen to your board. A lot of times the owners and management are very entrepreneurial and like to make their own decisions. You need to step back and listen to what the board tells you. Sometimes you need to look at what’s best for the company, not necessarily what you think might be best based on your personal experiences and/or biases. The board can provide this type of information.

What are some qualities of a strong board member?

They need to be prepared. They need to be willing to state their opinions and challenge the company when necessary. In other words, they shouldn’t be the type of board that just agrees with and rubber stamps everything — there should be some back and forth between the board, the owners and management, and they should not be afraid to challenge company decisions.

Board members should have diverse backgrounds, and the expertise and experience to supplement gaps and weaknesses of the owners and management. They need to be able to use their experience on other boards, along with their familiarity of current best practices in various areas of business.

What risks do you run by having an ineffective board?

It’s wasted time and effort if the board is not working to the best of its abilities and doesn’t contribute to decisions. It takes the focus off of running the business. The board should be helpful and not a detriment. It needs to get timely and accurate company information, both financial and operating, in advance of the meetings, so the members are prepared to discuss the issues and challenges that the company faces.

What’s the difference between a board of directors and an advisory board?

Advisory boards can be very helpful to companies. The difference is that the board of directors is a formal board with authority, and is part of the company governance. Advisory boards are more of an informal arrangement, where there are exchanges of thoughts and ideas and perspective, but the advisory board doesn’t vote or have any authority as far as decision making. A company of any size should have either a board of directors or an advisory board to help them.

Companies that have a board of directors usually have an audit committee. This is important for the financial side. The board should benefit the company, both from a financial perspective and an operations perspective. But on the financial side, it’s important that they have a good audit committee that meets with the auditors, goes through the audit results, asks a lot of questions, and makes sure the company keeps current with the latest accounting and financial statement pronouncements.

How can you make sure your board is effective, and why are these items important?

Board members need to be paid. Sometimes boards are made up of buddies of the owners, and they don’t get paid much, don’t offer much, and don’t have strong opinions and therefore don’t challenge the owners and management from time to time. There needs to be high expectations for participation and information from the board members in exchange for reasonable compensation for their service.

If you’re going to go to the trouble of having a board of directors and spending the time with them, you need to take it seriously and have strong board members. This ensures that their time is productive, and adds something that the owners and management don’t already have. The board member should bring something to the table that the company lacks or isn’t strong in. This ensures that your board is effective and helps make your company successful.

Jim Bechtel, CPA, is the director of assurance and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5208 or jbechtel@gbq.com.