Getting the most from your outside directors

Oct 06, 2008

More and more design and environmental firms are adding outsiders to their Boards of Directors. There are many reasons for doing so but that’s not the point of this article. Instead, what I want to discuss today is how to get the MOST from your outside directors. But first, let’s talk about what you can do for your outside directors. Of course, most outside directors are motivated by a desire to help people they admire and respect (the primary owners of the design or environmental firm). They have often had personal relationships with one or more of the owners. You have to be sure that any outside director you add to your board will not be unduly influenced by these personal relationships. They must keep the company’s interests front and center at all times— not their friend’s interests. Sometimes these interests can be difficult to separate, especially in companies where one or a few individuals are the major owners of the firm! Outside directors are typically compensated on either an annual retainer plus per meeting fee, or simply per meeting. They may also receive some sort of stock options or be given the chance to buy some stock in the firm. About half of the companies whose boards I have served on allowed me to buy stock. Having some “skin in the game” some would say improves an outside director’s motivation level. Others might say they prefer them to be completely objective as only a non-owner could be. There are pros and cons associated with each. If you want to get the most from your outside directors, here are some things you ought to be thinking about: Do you have the right outside director to start with? Sometimes these directors are selected merely because they are friends of the founder or a major shareholder, instead of being selected for better reasons such as what they bring to the company. I look for people who have knowledge of the market the company serves. I think having insider knowledge from a company that either is or could be a client of the firm is one of the best types of outsiders to have on a BOD. I also think you should look for people with other connections to clients. And don’t forget those who have a particular skill set lacking in the company’s management or insider BOD members, such as legal, finance, or accounting. Last, I would look for people who can bring experience to the table on whatever your most pressing issue is. If, for example, you are looking to acquire other companies, bringing someone on who has done a lot of acquisitions could be very valuable. Where else will you get a chance to hire experts for so little money, experts who have your best interests in mind? Are you using the skill sets that your outside directors bring to the table? Are you keeping them informed of things that they can add their knowledge to? Are you bringing them into discussions about strategy? Are you finding ways to engage them as consultants or trainers so they have a chance to gain exposure to the rest of the company? Are you finding out if they can help you win a critical project or client? You need to be using these outside directors every bit as much as you can. I am sure that most of them are confident people who won’t be abused— if you are taking advantage of them by asking too much from them, you can pretty well count on them to assert themselves and tell you so! That’s why they are successful people. Don’t demotivate your outside directors. The meetings cannot be too long. They must follow a tight agenda. They must be much more than a review of the last quarter’s financial performance. Too much review of the past with no chance for the director to contribute to strategy and future-related stuff will demotivate and turn off most outside directors. They don’t need to travel thousands of miles in some cases to go to a meeting every quarter just to get a good lunch and be bored hearing all about stuff they have already read. That’s terrible! Prepare for your outside directors. Send them an agenda in advance and get their comments and suggestions. Send them all the financial information or other written information that will be discussed at the BOD meeting BEFORE the meeting so they can read up and know what’s going on. Call them if need be to talk about the upcoming meeting and solicit any early input you can regarding critical issues. Treat them as if their time is valuable because it is. Doing these four things will help you get the most from your outside directors. How would you say your firm stacks up? Originally published 10/06/2008

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.