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What You Need To Know As A CEO

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What You Need To Know As A CEO


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As a founder or as a C-suite corporate executive, you will interact with boards. This is a fact of entrepreneurial and business life. Boards serve a variety of roles depending on the nature of the organization and the makeup of the members of the board. Your interaction with your board is critical to the success of your organization, so it’s important to understand the different kinds of boards and different styles of board members.

The Traditional Board Of Directors

Typically serving publicly traded companies, boards of directors are the fiduciarily responsible group overseeing the corporation on behalf of all the shareholders. The buck literally stops with the board. Furthermore, the CEO reports to the board—even if he or she is a member of it. Ultimately, the board bears risks related to the performance of the company and can be held liable if sued.

The Advisory Board

An advisory board should be seen as the CEO’s older mentor at the table. It is there to advise the CEO and executive team on how they should run and grow the business. Sometimes, these board members are shareholders or investors, but not always. And usually, they do not hold a controlling interest in ownership.

Venture capital funders will often take advisory board roles hoping to maximize the potential that their investment will ultimately pay off. Board advisors often have specific expertise in the field of business where the company operates as the board’s role is to help the executives run the business. The CEO does not report to the board but can utilize the expertise of the board.

The Nonprofit Board

Somewhat like a traditional board of directors, the nonprofit board is set up explicitly to ensure that the mission of the organization is carried out. Every nonprofit typically has a set of goals and objectives—sometimes its philanthropic benefactor has codified this, sometimes it’s more of a legacy thing—either way, the nonprofit board is established to make sure the organization sticks to its goals and mission and does so ethically and within compliance of nonprofit law and accounting rules.

Nonprofit executives are subordinate to them and the CEO answers to the board. It’s a hybrid of the traditional board and the advisory board where members can be any individual who can move the nonprofit’s mission forward, from large donors to political figures to community leaders.

The Three Types Of Board Members

Regardless of the kind of board, there are three kinds of members of those boards.

Passive: These board participants engage only when asked. They typically attend quarterly meetings but are rarely involved beyond that. There are reasons to have such members on the board but realize their involvement in your organization will be limited.

Active: Active board members see their role on the board as enabling the mission of the entity and assisting and empowering the executive team via their skills, connections and/or capital. These participants seek to serve the organization and its stakeholders broadly. Active board members get involved in the business and they take their role seriously. Their job is to advise and review, but not to create excessive work. For example, the active board member will want his executive team to find solutions to major issues like risk, ID theft, growth, etc., and they want such work to add value to the firm.

Activist: The activist deviates from the other board member categories in that they put their needs or interests (or that of a minority shareholder or subgroup of stakeholders) first, as opposed to a more encompassing group. These board members are often focused on changing the direction of the entity—financially or along other aspects, such as environmental, social or governance. Often the role of the activist board member is to agitate for change.

The CEO’s Role

The advisory board and nonprofit board members should be chosen based on the needs of the organization. Does the prospective member add potential network, skill, expertise or other talents that can help the running of the organization?

With non-profits, the decision to join can be very personal and driven because of what they believe they can do for the institution. Traditional boards of directors are voted on by shareholders upon proposals by the executives or the board itself. A resume, board experience, specific skills and a willingness to take on the risk and responsibility of overseeing a public company are all required to serve as a corporate director.

The board at a private company, public company or nonprofit holds the executives they oversee accountable. The job of the executives, specifically the CEO, is to set expectations for the board—what they can expect from the CEO and vice versa. There needs to be a clear commitment on both sides that is supportive but not burdensome as most board members hold similar roles at multiple companies or are themselves, senior executives. Deliverables should be outlined when setting out expectations. How this is done depends on the CEO, the type of board and board members.

The board exists for the reasons outlined above, and it is incumbent on the CEO to use them for the skills they bring to the table. It is a waste of money, time and social capital if you choose to ignore them.

Don’t expect the board to lead you. Take the lead. As CEO, tell them what is happening at the organization, what your plans are and ask for their thoughts and guidance. If you keep in mind the kind of board you have and know what kind of board members sit on your board, and engage and utilize them accordingly, your job as CEO (a difficult one with substantial responsibility) will get easier.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

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