Advice Never Hurts

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Herbert Roskind Jr. built HoltraChem Inc., a chemical distributor based in Natick, Mass., from zero to $30 million in sales in fewer than nine years. Despite his stunning success, Roskind feels the need to create an advisory board that will guide his company as it grows.

"Even sophisticated entrepreneurs need advice on how to manage their companies," says Roskind, HoltraChem's chief executive officer. "Fast-growing companies like ours particularly need guidance. We want to set up an advisory board in order to get a perspective that is outside of our narrow sphere."

Roskind thinks he will "always need" advice on almost every facet of managing his company. To form his advisory board, he is now canvassing the country for businesspeople experienced in a broad range of categories, including accounting, finance, and marketing. The board is scheduled to be in place by early spring, made up of four or five members who meet at least twice a month and follow a strict agenda.

Although small companies often prefer to hang on to their scant cash and give equity to advisory board members, Roskind has decided to pay each member a fee instead. "I'm the type of CEO who finds it hard to relinquish any control of his company," he explains. "It's easier for me to part with cash." Many companies, when they want to establish a regular source of advice, simply add one or two outsiders to their formal boards of directors. However, it is often easier to recruit high-powered people for an advisory board, which entails fewer legal obligations and liabilities.

"Many people in high positions are reluctant to serve on a formal board of directors, because of possible legal hassles," says Howard Anderson, managing director at The Yankee Group, a management consulting firm based in Boston. "A board member is stuck with a hell of a lot of legal responsibility. If a company screws up, a stockholder, supplier, or customer can name that company's board of directors in a lawsuit. And an outside member of that board, even if the only attends a few meetings a year, is just as liable. Advisory boards, on the other hand, generally carry no legal liabilities. That means experienced, influential people are more willing to serve on them."

Roskind contends that advisory board members are less likely to lose their objectivity than members on a formal board. "Even outside members are eventually absorbed by the company's status quo," he says. "I don't need a bunch of guys to trade war stories with. I want a formalized group of people who have diverse talents and a fresh outlook to bring to my company's management. Building a company is the easy part. Managing it is the tough part. I'm an entrepreneur and a deal-maker, not a manager."

Last updated: Feb 1, 1985




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