A growing number of private companies are establishing boards of directors with independent members after seeing the many benefits, which include enhanced corporate governance similar to public companies as well as easy access to good advice. Without doubt, privately owned companies and family owned businesses large and small would be wise to follow suit, as the right mix of board members can add tremendous value in terms of deepening a company’s perspective, heightening its credibility and sharpening its competitive edge.
The trick is finding the right mix of board members. Based on my experience serving on the boards of private and public companies, and also working with both in a variety of industries nationwide, here are some general criteria I’ve found to be helpful:
Reputation: First, it goes without saying that board members should be respected and credible.
Objectivity: Look for objective, unbiased board members who aren’t mere “yes people” and can provide impartial advice.
Experience: Board members should have experience not only in your company’s industry, but also in other relevant industries, such as the industries in which your clients operate. For example, if your company sells billing software for medical offices, then it’s helpful to have board members who have experience in medical billing, in selling products to medical offices, or who have healthcare-related backgrounds.
If your company wanted to seek global expansion, then a board member with global business experience would be a wise choice. The key is to have a healthy mix of board members who represent a cross section of your industry and others who may not have any direct experience in your industry but do have experience in say, technology, social media, finance, law or accounting. A great find is always a board member who previously worked for a successful competitor and can bring additional insights and intelligence to your company (of course without violating any confidentiality agreements).
Knowledge: Board members who are noted thought-leaders, such as professors and authors, can bring tremendous depth to your board and also provide invaluable guidance in handling issues and helping chart your company’s future. For private companies that need to access capital to support their growth plans but lack experience in accessing the capital markets, board members with capital-raising experience can help put in place the processes, procedures and information that are necessary to raise capital.
Contacts: With relationships being such an important part of doing business, it’s smart to add board members who bring good contacts in terms of potential clients, referral sources, investors and other key influencers and stakeholders.
Diversity: In today’s increasingly diverse market, in addition to racial, ethnic and cultural diversity, it’s important to have gender diversity on your board to help ensure a broader perspective.
Independence: As the name suggests, an independent director is someone who’s truly independent — neither affiliated with the company nor related in any way to its owners or executive leadership. The benefits of having independent directors as part of the board are significant in terms of helping manage conflicts and providing impartial guidance. Although the Sarbanes-Oxley Act applies only to public companies, and private companies are not required to have a majority of independent board members, many lenders and institutional and private-equity investors today want assurances that private companies meet proper accounting and fiduciary standards. Those that have healthy boards and the right procedures in place are more appealing to investors by demonstrating the commitment of the company’s leadership to run the business with objectivity and integrity.