Strategic Planning in the Small Business

Unit 6

HO 6-5 (Continued)

ownership, and in direct

proportion to the relative size of that ownership.

Directors can only

be effective with an authority

that is drawn from that ownership's respect

for the board, and

from its expressed desire to

accept and act upon the board'ssuggestions and

advice.

What about a director's liability?

Liability is

often listed as a major excuse for not having a

board of outside directors.

It's a

lousy excuse in most cases. A director's potential

liability (assuming he or she is not

associating with

people intent on committing fraud) is only to

one group of people: the

shareholders. When the owner/operator

is the shareholder, clearly the chairman can't

sue the

other directors for negligence. Most problems,

if they arise, will come from inactive

shareholders -and a little pnidence can eliminate

most of these potential problems.

There are many types of liability

insurance for directors and officers. It comes

in all

shapes and forms, with deductibles

and with umbrellas. Still, given the generally limited

nature

of the liability problem, insurance may often

be an unwarranted and unnecessary expense.

Good

corporate legal counsel

could answer this question.

What about

hiring consultants instead of boards?

Sometimes

• as in the case when a business is not yet
  ready for a board -a consultant

can serve the business well.

I have been a consultant now

for nearly thirty years. Usually, after solving the

crisis that

precipitated our first

meeting, I urge the business to create a board of

mutually respecting, risk­

taking peers without self-interest.

I hope that I will be remembered

as one who left a living institution -the concept

of the

outside board of directors -forever to serve the continuing

needs of successful business owners

and their companies.

There will probably

always be a need for consultants in highly

specialized fields. But,

I think that the role

of generalist consultants will increasingly be replaced

by the outside boards.

Strong boards have more

to offer than generalists.

Outside

directois represent a commitment to an ideal.

They symbolize the acceptance

of a significant
truth: that the truly closed corporation cannot
survive long in today's world.

Boards can help by opening private
owner-managed businesses to the inevitable:
the changes

that loom on the horizon.

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