Independant Directors
An independant director and an advisor are in many ways similar. While an advisor does not have any formal shareholder voting rights, they are often chosen for similar reasons as an independant director - to bring much needed experience to the company to help guide strategic decisions. Unlike advisors, which are sometimes chosen as figureheads for a corporate slide deck, an independant director is a very important part of how excellence is built to support long term business success. Even in the earliest stages, you should work hard to add at least one independant director to your Board to balance the value and contribution of the group which can otherwise be solely focused on financial risk if it only contains financial investors.
Fiduciary Responsibilities
An independant director would not have a material relationship (financial) with a company and is neither part of its executive team nor involved in the day-to-day operations of the company -- common phrasing of the role you can find on-line as it relates to directors of public companies. This still should hold true of private company directors as you want to preserve the perspective an independanrt director has to be "independant", to provide balanced judgement and impartial input as possible. Someone who might also have a financial relatiopnship with the company might allow decisions to be swayed by how they affect company value -- such as what to do when a sales target is missed. An independant director therefore, is often referred to as the director representing the rights of the common shareholder whereas the investors represent the rights of the preferred shareholder.
Compensation
Independant Directors are normally offered compensation for taking up their responsibilities. They should understand that a developing business is not often able to fully compensate them for the true value of their time as though they were an employee. A common Director package would combine:
- a stock option grant
- a monthly stipend of sorts (a few thousand dollars per month)
- coverage of any out of pocket expenses
Gaining Value
How much value you gain from an advisor or an Advisory Board is really up to you. As mentioned above, it's not uncommon for companies to get excited by who they attract, use their names and reputations in press releases but not otherwise engage them to help with the business. It's seen as a bother to reach out, arrange time and get them up-to-date with your needs. It's the type of encounter that is a bit out of sync with normal business rhythm (you could say the same thing about Board meetings). Gaining value requires some effort, well worth it if used effectively.
The following suggests some possible ways to maximize value from an Advisor (or Advisory Board):
- Establish regular contact times. This will make the use of the advisor more consistent with overall Company rhythm.
- Send the Advisor a short email summarizing what you might want to talk about. This allows the Advisor to be a bit less off-the-cuff with comments. If they have nothing to do, they might prepare a short response to advance the discussion deeper than it might otherwise be (a better use of time overall).
- Keep the Advisor up-to-date with important Company activity. This will help bridge any knowledge gaps so that when you do have a discussion your not spending half the time slot providing business updates. Given confidentiality is assumed (and properly documented in an NDA), you should share the same kind information you might share with your Board.
- Introduce the management team when appropriate. Don't hesitate to allow one of your senior managers to work directly with the Advisor if the situation warrants. Unlike your Board members, the Advisor is there purely to help, not govern the business. They can act as a mentor for a less experienced resource or otherwise help you assess the validity of an operational initiative.
- Confide in the Advisor. The CEO role can be lonely so having someone to talk to about the issues that impact you is always helpful. This assumes the Advisor has relevant operational experience.
- Thank the Advisor. Let the Advisor know when you feel they are really helping you. If you treat them as part of your team, you should recognize great performance. Send them a t-shirt from time to time and invite them to Company functions if feasible to attend.
Currency
Any business undergoes changes over time. The market changes, the products change, the economy changes, things are in flux -- perhaps even faster than ever. If you decide to leverage Advisors, make sure they stay relevant to your business needs. Someone you might have engaged in the early stages has less relevance as your business grows to new stages. Don't hesitate to end an Advisor relationship and replace with another. You should be a bit selfish about this, as it is your task to build maximum value in the business, doing so with Advisors who you have left behind is not a good use of your time (and stock options).