Private Company Advisory Boards Can be a Boost to Your Borrowers
April 17, 2015
Borrowers who seek input from trusted professionals outside the company’s four walls tend to make better-informed decisions, leading to higher credit scores, than those who keep decision-making close to the cuff. Although many people associate advisory boards with public companies, private company advisory boards are generally less formal and their members aren’t bound by the same fiduciary responsibilities as public company boards of directors.
Instead, they serve in a consulting capacity if a borrower is struggling or plans to venture into uncharted territory, such as a new market or product line. This team of professionals can also bridge gaps that private business owners have in terms of skills and experience.
Understand potential uses and limitations of private company advisory boards
Advisory boards are made up of trusted expert counsel on many important matters, such as financing, operations management, information technology, tax planning and legal issues. These objective outsiders typically won’t get involved in the borrower’s day-to-day management or develop strategic policies. Instead, board members can offer fresh insights and expertise when management is developing strategic plans, brainstorming new business ideas and navigating the company’s future direction.
An outside board can also help increase your borrower’s perceived professionalism, enhance accountability and provide greater credibility with stakeholders. For privately held businesses that are considering going public, board members who’ve been through the process can be invaluable.
Cherrypick the right members
As your borrowers assemble their boards, objectivity is critical. They may ask lenders for recommendations of CPAs, IT professionals or attorneys — or even request that you directly participate in the advisory board.
Board size varies with the size of the company, but, generally, borrowers should limit the number of members to three to seven people. This will help keep the board affordable and manageable, particularly in terms of effective deliberation and decision making. In exchange for providing their services, borrowers may choose to pay advisory board members consulting fees for attending meetings.
It’s also important for board candidates to understand the borrower’s mission and goals. They should also be clear about what’s expected of them and be able to commit the necessary time to get the job done. Members should have skills, experience and expertise that complement the borrower’s in-house staff and support the company’s long-term goals.
Ideal board candidates can think creatively and provide constructive advice while maintaining discretion with sensitive business issues. This allows the board to honestly discuss every aspect of the borrower’s operations, including challenges, emerging opportunities and managerial dynamics.
Avoid volatile combinations
Selecting advisory members is similar to selecting friends and colleagues to invite to an intimate dinner party. You want a diverse mix of backgrounds, expertise and skills. And each board member’s personality should mesh well with those of the owner and other members. For example, impulsive, assertive personalities should be balanced with more thoughtful, cautious ones.
As its business needs change, the owner may need to rotate some board members out and bring in new blood. For instance, if a company upgrades to a new technology platform to minimize data breaches, board members who were invaluable when the company began — and technology played a less prominent role — may lack the experience needed to get the business through the next phase.
Recommend trusted professionals for a private company advisory board
Large or small, every company can benefit from outside advice. Advisory boards help your borrowers grow and adapt to obstacles. Owners often need help assembling the right mix of board members in terms of experience, skills, backgrounds and personalities. Don’t be afraid to speak up and refer borrowers to trusted professionals who will guide them toward a prosperous future.
Have questions about forming a private company advisory board? Or, are you looking for more information on our commercial lender services? Contact Sean Taylor, CPA at 404-874-6244 or fill out our form for more information.
If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.CONTACT AN ADVISOR
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