Sounding Board

Establishing even an informal board of advisors can provide much needed outside perspective for small business owners

Story by Gina Mangan

 DAVID GNEISER LEARNED HIS FIRST LESSON in business the year he took over Fond du Lac Bumper Exchange from his father. Never be afraid to ask for advice.

Within a year of becoming the third generation to run the family-owned company, Gneiser’s company faced bankruptcy. He’s not too proud to admit that he made his share of missteps. He said he immediately began asking for advice from business professionals and others in the community, listening and learning at every turn.

With the informal counsel of others, he managed to right the sinking ship 14 years ago. He’s since sailed full speed ahead. But it wasn’t long before Gneiser began focusing his attention on how to stay the course.

 After making the decision four years ago to expand into Wausau, he had grown his company to nearly $5 million in annual sales and 40 employees. Not only did his own family’s livelihood depend upon the continued success of Fond du Lac Bumper Exchange, but so did the families of the 40 others who worked for him. It’s not a responsibility Gneiser takes lightly.

“I knew the company was approaching a point where it required a whole new level of accountability,” he said. “I thought, ‘A lot of lives are depending on you. A lot of money is coming through. What are you going to do now?’”

Relying on the lesson of his first year and the principles of his Christian faith, Gneiser decided to form a board of advisors to consult with him and his senior management team. The five-member board includes him, his wife, his son and two outside board members, one with expertise in human resources and the other in finance. He said he is considering adding additional outside advisors with expertise in distribution and sales or marketing.

In addition to clarifying the company’s mission, the role of the Fond du Lac Bumper Exchange Board of Advisors has been to develop and monitor a strategic five-year plan, as well as plan for continued operation should something happen to the company’s owners.

“I learned from my experience that first year that I couldn’t and didn’t want to do this alone,” he said.

Although there aren’t statistics on the number of privately held businesses that are forming strategic advisory boards, an increasing body of literature is pointing to the benefits of creating them, as well as more formalized boards of directors. The input provided by these boards can be critical to a company’s long term success, said Dale Feinauer, a human resources professor with the College of Business Administration at the University of Wisconsin-Oshkosh. Feinauer consults with businesses on board development and is among the members of the board of advisors at Fond du Lac Bumper Exchange.

“The kind of advice that boards of directors or advisors provide can make the difference between success and failure of the organization,” he said. “Good strategic plans and succession plans are critical. If you don’t have them in place, you can eventually go out of business.”

Board of advisors or directors?

WHILE PRIVATELY-HELD COMPANIES might name their directors in legal documents, many do not have in place strategy- and policy-making boards of directors, which would include paid directors from outside the company. Those that do, utilize their board of directors in many of the same ways that companies use a less-formal board of advisors.

“Boards of directors can help provide an outside perspective, challenge the thinking of company management, and fill in gaps of expertise,” said Wisconsin Family Business Forum Executive Director Sue Schierstedt. “That board becomes a great resource and strategy group during times of transitions. We see a lot of family-owned businesses putting their boards in place when they’re anticipating a change of generations.”

The board of directors differs from a board of advisors in that it has legal authority and fiduciary responsibilities in the company, as well as the responsibility and liability for the financial well-being of a company. It is, in essence, a more formal entity.

Gneiser considered both options for his business, but ultimately selected a board of advisors because he felt it was a better fit for his company. He wanted support and guidance from outside experts, but he didn’t want to create a legal entity.

A business owner’s selection depends on circumstances within their companies, Feinauer said.  For example, a board of directors can be useful in a family-owned company in which some family members work in the business and some do not. The board can manage difficult decisions that include compensation issues for those relatives who work in the company and those who don’t.

Another role the board of directors may play is helping identify and groom a senior manager for a family-owned business in which there is no family member ready to take that position, Schierstedt said.

“There are many different scenarios that can apply,” she said. “There’s no such thing as “typical” when it comes to family-owned businesses.”

Whether it’s a board of directors or board of advisors, it’s a group of individuals that serve as a resource for company owners, who are often the senior managers in their own businesses. And it can be lonely at the top, Feinauer said.

“Part of the problem of the CEO is that they don’t have anyone else in the organization at the same level. Everyone works for you, so it’s hard to let your hair down, share data, ask others what they think and expect to get an objective answer,” Feinauer said. “A board is going to hold the manager accountable, and maybe question their thinking and ask them to do some more analysis.”

Selecting the right people

THE EFFECTIVENESS OF BOARDS – whether they be governing non-profit organizations or advising private companies – are determined largely by the individuals who serve on them.

Feinauer recommends they be made of the company owners, spouses and non-employees of the company who can advise without fear of reprisal or for personal gain. It’s generally helpful to have a majority of outside directors or advisors, he said. The criteria for those members should be based on the needs of the company, he said.

“A company might want someone who can help with government regulations, who understand their industry, who has ties with a lot of people in the area, who represents the customer base or who has technical expertise in an area like human resources or government regulations,” Feinauer said.

Identifying board members often requires the identification of strengths and weaknesses.

“It’s looking at what you have already and what you need,” Schierstedt said. 

Once the criteria are determined, company leadership can look to the broader community for those individuals. The Wisconsin Family Business Forum, a UW-Oshkosh-based entity which provides educational programs and resources for family-owned businesses throughout northeast Wisconsin, has helped several companies find members for its boards of advisors and directors. Trade associations, service and business organizations, and other business connections in the community can also be sources for potential board members.

“Word of mouth is often the best way,” Schierstedt said.

Marilyn Bugenhagen, co-director of Marian University’s Virginia L. Duncan Gilmore Center for Spirituality and Leadership, suggests company and non-profit organization leaders check references and talk with other people who know them prior to interviewing potential board members. Then talk directly to the potential board members to determine if they have the expertise needed, if they share the values of the organization, if they can devote the time that’s required and are an all-around good “fit,” she said.

“You’re also going to want to know there’s a good match between the board member and the staff and the culture of the organization,” said Bugenhagen, who also serves as an assistant professor of leadership studies at Marian.

In the case of family-owned businesses, it’s especially important that the owner’s spouse is comfortable with board members, Feinauer said.

“If something should happen to the owner, the spouse will want to know that the board members are able to manage the business at a high level in a transition period, so that confidence is very important,” he said.

Once brought onto the board, it’s important that members go through an orientation process in which they are introduced to the management team, and learn about the organization, its operations and plans for the future, Schierstedt said.

“For example, does the company want to grow? Does it want to diversify? Expand into new geographic areas? Is the next generation leaving the business?” she said. “Often families have expectations for their businesses, and they want the board to understand those expectations.” 

That communication of expectations is critical to the effective operation of any board, said Mary Klein, who co-directs with Bugenhagen at Marian’s Center for Spirituality and Leadership.

“If you did a study of successful organization you will find these are organizations in which everyone is clear about their roles,” Klein said. “Where there’s stumbling is when there’s a lack of understanding and communication.”

The board role

THE ROLE OF ANY BOARD is to keep its sights on the big picture – or the view from 10,000 feet, Bugenhagen said. Boards might articulate and support the organization’s mission, be involved in strategic planning and set policy, but they aren’t involved in day-to-day decisions, she said.

Company boards of directors and advisors can serve many roles, including those related to being a “backstop” for management decisions, succession planning, holding management accountable, and management compensation, Feinauer said.

In the role as a backstop, boards review, analyze, support and question management proposals. Related to that analysis is the idea of holding senior management and owners accountable to the mission and strategies, he said. Are they following through on strategic elements? Are the strategies successful? Should they continue, back-off or change courses?

“Senior management are very involved in day-to-day stuff, so it can be difficult to see that a change in direction is needed,” Feinauer said. “A board can provide that vision and accountability. In studies of companies that go bankrupt, we often see they’ve charted a direction that seemed reasonable at the time, but it turned out not to be. But the leaders were too stubbornly tied to the original idea to change. A board can help prevent that from happening.”

It was that added level of accountability that motivated Gneiser to form his board. 

“Before the board, I was accountable to no one. I wanted to be held accountable,” said Gneiser, who said he has no qualms at all with the board of advisors formally assessing his performance. “It’s for the good of the business.”

When Gneiser suggested moving part of the five-year strategic plan up a year, his chief financial officer reminded him of the plan the board of advisors helped develop with the idea 

that one of Gneiser’s goals was to become debt free.

“I thought about it and realized that, no, I didn’t want to deviate,” he said. “Having that plan and the board of advisors provides not just accountability, but discipline. And the board has challenged us on a few of our thoughts.”

Fond du Lac Bumper Exchange’s Board of Advisors also prompted Gneiser and his wife to plan for the future of the business, either in the case of their retirement or death. During the first meeting, the board requested what Gneiser refers to as “David’s Demise File,” which included company computer passwords, lists of go-to people and other information that would allow Fond du Lac Bumper Exchange to continue day-to-day operations without Gneiser at the helm.

Part of that succession plan kicked in last summer when Gneiser developed a blood clot after knee surgery. He was hospitalized for a few days, and couldn’t so much as get his laptop to work in the hospital.

“That’s part of the role of the board, to ask ‘What if?’ What happens if I die, this place folds and there are 40 families saying, ‘David was a great guy, but I don’t have a job now.’ We needed a plan so those people could be assured that they would still have jobs,” he said. “Again, it comes back to the idea of accountability and stewardship of the blessing of running this company.”

Gina Mangan is a freelance writer based in Oshkosh and is raising three children. Readers can email her at gmangan-schmitz@new.rr.com.