Drawing Boards

Are directors or advisers better for your company?

All boards are not alike, at least in the eyes of the law. A board of directors is legally responsible for protecting the interests of company shareholders and can be held liable for the decisions it makes. An advisory board, on the other hand, has no such accountability.

But for privately held companies in which most or all of the shares are controlled by the owner or the owner's family, there's not much practical difference between the two types of boards. That's because the owner is the ultimate decision-maker. If a board tries to fire her, she can overrule its decision. Owners also have the option of appointing more family members than outsiders to the board.

The balance of power is different when outside investors are involved. They typically insist on establishing a formal board of directors ,with investors or their representatives taking one or more seats. Often there are more outsiders than insiders, giving the board real authority.

Dan Dershem did something different. Dershem, CEO of LeanLogistics in Holland, Mich., a $10 million, 45-employee maker of logistics software, wanted more control over the composition of his board. Six years ago, after co-founding the company, he proposed to his investors that he appoint the four outside members of the six-person board. His investors, who own 80% of the company, agreed. Says Dershem: "If you have too many significant shareholders, then you lose the advantage of having a neutral third party." One of the outsiders, a logistics expert the investors held in particularly high regard, is what Dershem calls a "superdirector." Anything related to major investments, for example, would require not only board approval, but his O.K. as well.

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