A profile of three companies and their relationships with their boards of directors.
How three company builders turn to their outside boards for answers
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For Nancy Olsen, this was the last straw: two of her most experienced employees had walked out the door with no explanation, leaving half her dealerships without technical support. The past few days had been no better; her switchboard was lit up with calls from frantic dealers unable to get their point-of-sales computers working. And so far, six boxes of glass display cases for stores due to open within the next several days had arrived shattered.
But Olsen, the founder of Impostors Copy Jewels, a retailer/franchisor of costume jewelry, had to forget all that. Instead, she'd spent the past 20 hours preparing company reports for her newly formed board of outside advisers -- prominent businessmen she barely knew. And although she needed them to help navigate her company's fast-paced growth, on that November day she resented their demands. "I couldn't see the rationale of taking time away from the day-to-day crises to explain numbers I already knew inside out."
Today, more than a year later and with annual revenues of $17 million, Olsen considers the board her secret weapon. Hardly a group of yes-men, her advisers, who have since become a board of directors, take an active role in the future of her company, probing, guiding, and sometimes even stepping in to offer help. One board member, the president of a financial-services consulting firm, took over as chief financial officer for several months until a replacement was found; another, a founder of a local advertising agency, is choreographing a new ad campaign for the company. Now, Olsen asks, "How can any company afford to operate without an outside board?"
The answer is that few do. John M. Nash, president of the National Association of Corporate Directors, estimates that 60% of closely held companies have at least one outsider on their board, but only 5% have Nancy Olsen's courage to form a board dominated by outsiders. Nash sees outsider-run boards on the rise. The reasons? The demands of a more competitive marketplace, the high price of consultants, and the pressures of succession.
Outside boards are as varied as the chief executive officers who form them. Anxious about market shifts, Robert Syme, a Cleveland-based maker of hazardous-waste drums, put together a board representative of his customers. Clayton Mathile, CEO of The Iams Co., a pet-food company, stresses his desire for "seven-digit decision makers," especially as he looks toward global markets. Others look for help with their organizational structure, their product line, and often their bottom line.
Whether these outsiders sit on a formal board of directors or a less formal board of advisers also depends on personal preference. Some CEOs feel they'll take advice more seriously from a board of directors that shares the company's legal risk and its responsibility to shareholder interest. Others find that starting with advisers is a more informal and sometimes an easier way to set up a board, without committing to the strictures of (and insurance on) a board of directors.
What follows is a look at three very different partnerships of company owners and outside boards, partnerships built on intellect, trust, dedication -- and even friendship.
UNDER 30 AND IN THE BIG LEAGUES
After four years in business, Micro-Frame Technologies Inc. had 1988 sales of nearly $2 million, and the company was pulling in six-figure deals with such industry giants as McDonnell Douglas, Motorola, and Martin Marietta. But success didn't suit John O'Neil, the company's young CEO. "I knew I was going to need more experience to run the company. At 26, how much can you know?"
O'Neil did know enough to think his board of directors -- which consisted of himself and two other cofounders -- wasn't the place he could turn to for advice. "It was ridiculous to think we could take off our day-to-day manager hats, put on new hats, and magically transform into board members," he explains.
Frustrated and antsy for expert advice, O'Neil had turned to consultants. In one year Micro-Frame dished out more than $100,000 for such expertise, but O'Neil only felt poorer for the exchange. "One Big Eight firm gave us an accounting system fit for a billion-dollar company like Microsoft, but for tiny Micro-Frame it was overkill," he says. The very excitement that had helped O'Neil create his company was now beginning to hurt it. "I'm like a huge sponge, constantly soaking up new ideas," he says, "and I want to try them all out at the same time."
In late 1987, O'Neil had come up with the idea of starting a board of advisers to provide the experience and know-how that he and his cofounders lacked. A few months after calling on respected colleagues and a local entrepreneurial network, O'Neil assembled his private brain trust. Bob Cherry, the former president of Telecom Technologies during a major turnaround (having taken the company from $7 million in sales and 145 employees to $15 million and 125 employees), understands both the people and operational issues at Micro-Frame. Mike Mann, a consultant to Arthur D. Little Inc., covers strategic marketing and, as one friend says, has "more contacts in the defense industry than God." Chuck Morrissey, a professor and a founder of three software companies, burrows into the financial and market-planning questions. Behavioral-sciences consultant Brad Spencer acts as chairman, pulling all these sometimes divergent voices together into one that is committed to Micro-Frame and its CEO.
What the Board Does
O'Neil's board was eager to learn about the business, but he didn't make it easy. Despite repeated requests for financial reports, O'Neil arrived at meetings exuberant but empty-handed. "John's talk was of the future, yet the company was in trouble today," recalls Cherry. "There were no financial controls and the company was hemorrhaging cash." Morrissey adds, "Given a few real bad months, Micro-Frame would be out of business."
