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.”
7 Benefits of Outside Directors:
- Unbiased advice: Their advice is not tainted by the existing boards views and politics.
- 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.
- Objective: Outsiders have been there and done that and can add the objective advice that boards need to distinguish crises and normal situations.
- New skills: New board members skills and experiences bring a different view to problems and discussions.
- Credibility: It sends the message that you are a serious organization. This can help with negotiating new financing, selling the company or an IPO.
- New resources and contacts: Outside directors bring a whole new set of contacts and connections that can be leveraged. Contact introductions include customers, suppliers, and bankers.
- 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.
*Larry Putterman* Outside Director | Interim CEO | CEO | Growth Strategist | Technology | Industrial | CEO Coach & Advisor