There is an increasing supply of qualified candidates looking for their first board seat with a private company. Experienced board directors understand how the process works and what to expect. First-time candidates, however, are thirsty to learn how the process works and how best to get into the game.
Knowing where to start is, in itself, a challenge. There are considerable resources for candidates to understand the preparation and selection processes:
Potential candidates seek advice in understanding the motivations and benefits of service, creating an individualized plan to prepare for the selection process, learning how the selection process works, and getting feedback from active directors on how compensation evolves over time.
Here is a snapshot of the average search for a board director by example:
Before thinking about competing for a board seat, it is important to understand what the position is and isn’t; be sure your motivations and interests align with the company’s needs and expectations.
There are many reasons one may seek a board seat. The distilled wisdom of experienced board directors is consistent: don’t do it for the money. While compensation for most candidates usually respects the director’s time and contribution, the pay does not balance the risk and responsibilities. You need a more powerful motivating factor.
When asked why they serve, experienced directors consistently say:
Many directors seek seats as a means to network for other personal reasons. One director says that one of the greatest benefits of being on a board is the friendships that result from being involved. He cites several of his fellow directors who have become dear friends, even though their mutual board work ended years ago.
Candidates always wonder about compensation, so it is important to know the market. Public, private equity, and venture capital companies are outside the data presented here. This applies to private and family-owned businesses, typically in the $10 million to $300 million revenue range in the U.S. There have been several credible board compensation studies performed over the years to get a better idea of wat compensation looks like for a director. Two well-known sources are Private Company Board Compensation and Governance studies and Lodestone Global2 This source provides for the last nine years of data to reference when trying to gauge what compensation may look like.
The rule of thumb has long been that companies in that size range pay from $20,000 to $40,000 per year using retainers, meeting fees, and other forms of compensation. Some include equity, but less so with family-owned businesses. These figures trend higher as revenues exceed $300 million, but not significantly higher.
These figures are in the middle of the market, and there are many exceptions. One company sets director compensation by determining the CEO’s hourly rate and applying that to the number of hours per year expected from board members. The compensation should respect your time and commitment but should not be viewed as a primary means of financial security.
Experienced directors will tell you, once compensation is set, it does not change much over time. The data supports this observation. We found these comments to be instructive on why:
What tends to come as a surprise, but is consistent, is that the most overwhelmingly common value perceived by owners was that boards forced management teams to review their data every quarter and to give a presentation on it, resulting in increased accountability.
Success in the C-suite is not enough to guarantee success in the boardroom. Boardroom dynamics require a collegial style of intellectual engagement and rigor. Directors are bound by both a duty of care and a duty of loyalty. Directors have grave responsibilities but should not be making operating decisions or directing staff other than interacting with direct reports to the board. The common phrase is “noses in, fingers out, sensors on.”
Candidates with strong executive styles tend to be very directive in their behaviors — a command and control approach to interaction. Successful directors need to be highly collaborative and active listeners. Demonstrating this style shift is a critical part of the interview process, and candidates often fail to advance if they cannot quickly demonstrate their ability to behave as an effective director should.
There is a cottage industry of established firms, consultants, conferences, and academic programs to prepare people to become directors. They vary in quality, focus, geographic reach, delivery method, and cost. The good news is that candidates have options, but caveat emptor needs to be employed.
Candidates looking for help to prepare their written materials (board resume, bio, LinkedIn, etc.) can expect to pay $750 to $3,000, depending on who they choose to work with.
Academic programs vary from $1500 to $10,000, proportionate to their duration (one day to one week) and brand identification; conferences typically cost up to $2500 for a two- or three-day event. NACD (National Association of Corporate Directors) runs a number of programs, but these tend to target public companies and may not be the right fit for candidates only looking at private company seats.
The Private Directors Association’s keystone educational offering is a Certificate in Private Company Governance.
Individual consultants in this market typically charge $5,000 to $10,000 for a suite of services which is likely to include resume writing, interview preparation, coaching, and some degree of search support.
The online databases, where candidates pay a fee to receive opportunities, also tend to provide resume writing and coaching services to complement their primary offerings.
There are several firms in the UK and Europe which focus on those geographies, offering similar services to their U.S. counterparts.
If a private company has positive cash flow, pays its taxes, and is servicing its debts, then there may be no external pressures forcing change. This is why good outside directors can have a substantial impact. It is often difficult for entrepreneurs and owners to hold themselves accountable, and they often need independent outsiders to enforce accountability.
Accountability is a baseline value of a board. Board directors should aim to understand the needs and wants of the shareholders and create additional value. Overwhelmingly, experienced directors say, “Don’t do it for the money, do it because you want to have an impact.”
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Stephanie Olexa is an independent director and a governance professional with experience as a board chair and on audit and finance, strategy, compensation, risk management, and nominating/governance committees. As a business advisor, she has helped family-owned businesses build stewardship for sustainability. Stephanie is the Founder and President of Lead to the Future, LLC. In addition…
Bruce Werner is the Managing Director of Kona Advisors LLC, which provides advisory services to owners and investors of private and family-owned companies. With exceptional experience in finance, strategy, M&A, governance, and succession planning, Kona Advisors creates practical solutions to the most challenging corporate problems. Mr. Werner is an experienced Corporate Director, leading businesses through…
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