Moreover, in mergers and acquisitions, mid-sized private companies that have independent board members and in general are compliant with other aspects of Sarbanes-Oxley tend to have higher valuations. For many buyers, the ability to trust the internal controls and integrity of the financials is critical, as this means, among other things, fewer surprises after closing.
It would be virtually impossible to build a board that meets each and every one of your criteria or needs, so you need to prioritize and weigh what you need versus the best-available people to join your board. However, finding the right board members is only half of it. It’s also critical to implement the right procedures:
Before joining the board, every prospective member should disclose potential conflicts of interest upfront so that any necessary actions may be taken.
The board should have a fiscally sound policy for paying board members fairly for their services.
An orientation process should be established to educate new board members on the company’s history, growth, performance and vision, and ensure everyone is on the same page.
Written agendas along with supplemental information and financial details should be distributed in advance of every meeting so board members may be prepared to discuss the issues. A formal decision-making process should be implemented and full board meetings should be conducted to discuss issues that require action rather than making decisions through one-on-one conversations between the CEO and individual board members.
Minutes should be kept of all meetings.
It’s also important to take a forward-thinking approach to developing your board so that it truly supports your company’s vision. Keep in mind that you don’t need to fill all your board seats today. Some gaps in your board structure might be best filled at a later date, when your company has progressed in its lifecycle.
One of the most challenging issues to tackle, however, is to determine the extent to which the board will be involved in the company’s decision-making process. Will the board make the final decisions, or will it simply serve in an advisory capacity? For private companies owned by one or more family members, the reality is that the family will make the final decision. This should not upset or alarm the board members, as they still add lots of value. Every board has its own unique dynamics.
So, how do you find the right board members? Rest assured there’s no shortage of good candidates — you just need to know what you’re looking for and where to look.
In fact, some people make their living serving on boards professionally. Often, these are retired executives who haven’t quite resigned themselves to playing golf every day and want to continue to apply their experience and knowledge. Of course, you can always turn to professional headhunters, but it’s also good to ask around and look for yourself, too — talk to good lawyers, investment bankers, and accountants, as they usually deal with great candidates. Indeed, privately held and family owned businesses have much to gain from having a strong, effective board of directors. Those that do will be much more likely to achieve their goals and ultimately position themselves for growth, sale or whatever they choose as their end game.
James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies.