Board Director | Advisory Board Member | Interim CEO

7 Ways Outside Directors Benefit Private And Family Businesses

business man fresh eyes

Boards without outside directors do not make objective decisions. Boards need outside directors to see all sides of a problem and find the best solution.

Outside directors bring incredible value with their “fresh eyes.”

I believe boards that have not brought somebody new to the organization in the last one to two years run the risk of stalling the growth of the company.

Public companies are obligated to have outside directors, but private and family businesses are not.

The Wall Street Journal states: “In US public companies, outside directors make up 66% of all boards and 72% of S&P 500 company boards.”

Outside Directors are:

  • Not part of the executive management team
  • Sometimes referred to as independent or non-executive-management
  • Not employees of company
  • Not stakeholders

7 Benefits of Outside Directors:

  1. Unbiased advice: Their advice is not tainted by the existing boards views and politics.
  2. Different perspective than insiders: A CEO needs different views and perspectives to problems that only outsiders can bring.  This is especially true for a family business.
  3. Objective: Outsiders have been there and done that and can add the objective advice that boards need to distinguish crises and normal situations.
  4. New skills: New board members skills and experiences bring a different view to problems and discussions.
  5. Credibility: It sends the message that you are a serious organization. This can help with negotiating new financing, selling the company or an IPO.
  6. New resources and contacts: They bring a whole new set of contacts and connections that can be leveraged. Contact introductions include customers, suppliers, and bankers.
  7. On your side: Outside directors are on management’s side and will give opinions and advice that the company’s lawyers, accountants and bankers cannot give.

I was chairman, CEO and board director of SafeData, a data backup and recovery company.  Our premium service offering was cloud-based high availability.  High availability is data replication from one server to another.

We had an exceptional outside director who benefited us in all 7 areas.  We spoke with him daily. He made the difference in our growth and successful sale of the company.

For your private or family business’s success, find exceptional outside directors to complement your board and management team.

Which of the 7 Benefits of Outside Directors resonates with you?  Why?  Can you list others?  Why are they important?

P.S. – Do you need an Outside Director, Advisory Board Member, Trusted Advisor,  or Interim CEO?  Someone who can help you see your business and your goals through “Fresh Eyes.”  Contact me and I will work with you to look at where you want to go and help you find the best way to get there.  Sometimes all it takes is someone with a fresh viewpoint, unencumbered by company politics or culture to help find the right solution.

 

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About Larry Putterman

Technology and Industrial Executive specializing in next-stage growth and competitive advantage strategy. serial entrepreneur, CEO, and board director. Husband, father... and major golf and fishing enthusiast!

Comments

  1. Joe Tait says:

    Great article Larry – the value of an outside director can’t be understated. The more involvement I have with our Board and my personal involvement with the non profit Boards I am involved with the more I learn.

    • Larry Putterman says:

      Joe…Thanks for reminding us about the importance of outside directors on non profit boards.

  2. I’m a lawyer and corporate counsel, your comments and views ring true, make a lot of sense

  3. Larry – Excellent post and overview of how successful companies should consider the use of outside board directors to expand their scope of decision making.
    Thanks, Carroll

  4. Clear and concise Larry. Having served on boards of public and private cos, the independent directors have provided invaluable perspective on the business, asking excellent questions, challenging management and Board logic. Many thanks, jmk

    • Larry Putterman says:

      John…Thank you for confirming the importance of outside directors in public and private companies.

  5. Larry, Could not agree more. Excellent reminder, I have experience of both sides of this fence and have never doubted the impact and value.

  6. Tracy Ward says:

    Great article, Larry.

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