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Before presenting an issue to my board or directors, where can I turn for management advice?

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Law & Taxation mentor Chip Morse responds:
Consider creating an advisory board. Think of an advisory board as an informal board, one whose members serve at the pleasure of the CEO and do not have the same legal responsibilities or statutory authority as the members of a formal board of directors.

I tell the CEOs of high-growth companies with whom I work to put together a group of three or four advisers, compensate them in equity, and get them together quarterly to help with such things as critiquing the business plan or developing a corporate finance strategy. The day-to-day executives at a company need outside perspective and expertise, particularly in areas where they may not have sufficient experience.

In my opinion, too few CEOs create advisory boards, either because of ego or because they fear that having outside help may make them look incompetent in the eyes of their board of directors. Before outside financing, the advisory board and the board of directors could be the same people. But afterward, the board of directors is going to include representatives of the investors, who obviously have a definite view of how the company needs to be managed and how it can grow.

However, after the company's first round of financing by professional investors, the advisory board may still have an important role. CEOs might use the board to test their ideas before taking them to the board of directors. That way the CEOs don't have to show their hand to the people who sign their paychecks. I serve on some advisory boards whose primary role is to prepare the CEO for board meetings.

If you ask CEOs what the most difficult aspect of their job is, many say it's that they have no one to talk openly to. An advisory board addresses that problem.

Last updated: Sep 11, 2000




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