Small Businesses Should Take a Page From Large Corporations And Form An Inner Circle Of Advisors
By Judith Bachman
You’re a small business, maybe 50 employees or less, with annual revenues under $1 million. You’ve always run your business hands-on – involved in every aspect of the company’s functioning. You’ve relied on experience and gut instinct to found and build what you have. But the coronavirus pandemic has thrown curveballs small business owners – and large companies – have never encountered.
There is no such a thing as business as usual now – and perhaps not for a long time because the virus is still rampaging and there are far more uncertainties than knowns.
Small business entrepreneurs may want to borrow a page from large companies and form an advisory board of trusted colleagues and experts to help navigate uncharted waters in the months and years ahead.
Large companies typically have a board of directors who manage the business of a corporation (Business Corporation Law § 701). At its best, a formal board of directors provides discipline and objectivity as a foundation to maintain and grow the business. The board establishes binding resolutions for the corporation and appoints and controls corporate officers. Directors are generally paid or employed by the business. To ensure that directors act in the best interest of the company, they are bound by fiduciary duties and have liability for ill-considered decisions.
While small emerging and family businesses seldom have a formal board of directors, this would be the time to think twice.
An advisory board adds layers of expertise and objective guidance, particularly at a time when businesses are being forced to pivot, rethink operations, function differently, and message to the public in entirely new ways.
Typically, an advisory board meets regularly as a group with the owner and discusses challenges and opportunities for the business. Board members provide non-binding strategic advice, outside perspective, and fill knowledge gaps. So long as the business owner is open to receiving advice and honest feedback, the advisory board can be a valuable tool.
The advisory board is usually comprised of colleagues and friends of the business owner. It might include professionals such as an accountant or attorney. Ideally advisory board members should bring a raft of skills and perspectives, which means diversifying the board across the professional spectrum.
Ultimately, it’s crucial for the board to be given a wide berth. You want members to feel free to speak openly and candidly. You don’t have to agree with every suggestion but remember the board’s ideas are not binding.
Advisory board members typically serve voluntarily (though they can be compensated). They also have no fiduciary responsibility or liability to the business.
An easy way to form an advisory board is to join together with other business owners and act as each other’s advisory boards. With this type of mutual advisory board, each member gives and gets the support of the group. And everyone should have equal time with the group to get the advice that they need.
In any case, an advisory board is a good intermediate step before putting a true board of directors in place, even if the board is a temporary construct during these difficult times. But if it works in your favor, you can move on to a formal board of directors.
Judith Bachman is the founder and principal of The Bachman Law Firm PLLC in New City. judith@thebachmanlawfirm.com 845-639-3210, thebachmanlawfirm.com