How To Set Up A Board ...

By Ben Shapiro

There can be no doubt that the right advisor or director can make a real difference in your business. How do you decide whether to establish a board of directors, board of advisors or both?

What do the following people have in common?

Chairman of Westlake Development Corporation, which owns 35 companies and employs 5000 people globally in IT related businesses
Chairman of Core Pacific Yamaichi Securities the largest underwriter on the Hang Seng Stock Exchange in Hong Kong
Managing Director of Menota Partners $200 million USD venture capital fund

One wouldn't be surprised to find that these highly qualified and influential people serve on the board of advisors or board of directors for successful companies, however they would be surprised to find out the characteristics of some of those companies:

Ranging from 3 months to two years of age (total time established as a company)
Having never been formally funded before these individuals joined
80% of the companies did not know this person when they started the business

Accomplishments:

Raised over $20 million in funding
Developed 8 long term revenue-centric partnerships
Located 3 additional board of directors members
Arranged 21 investment meetings
Located one permanent CEO

Total amount of time it took to accomplish the above: 9 months

What this indicates is:

It is never to early to get good people involved in your company
You can gain the interest of significant people (it's not just about the money, it's about the business itself)
You don't have to know the people first in order to gain their expertise

Directors or Advisors?

For the most part, whether you establish a board of directors or advisors will relate to either the age or dynamics of your business. In the case of a startup or very early stage business, you will find that a board of advisors is probably your best bet because it allows you to keep control of the business solidly with the founders of the company but also gain valuable experience to help you grow the business. As your business matures and looks at taking on investment, you may need to look towards a full board of directors to give the investment market confidence in your company.

Here are some key points about these two groups:

Board of Directors (made up of people other than the founders)

Generally at a later stage or when growth is dramatic
Generally required of outside investors
Expected to contribute 5-10 hours per month
Accept some financial and legal risks

Board of Advisors

Generally at the earliest of stages
Expected to contribute 2-3 hours per month
Low to no financial or legal risk

Once you have decided where you are as a company and what type of board is your best starting point, you need to determine what skills may or may not be in your organisation. And once you have identified your greatest needs, how do you go about finding these people? Ask your neighbour? Ask your tax man or lawyer? Maybe.

What you really need to do is:

Locate a number of people who have been screened and profiled
Engage the right people:
Make an offer
Determine compensation
Understand the legal requirements
Set up expectations