6 Ways Outside Directors Benefit Business Growth
By John M. Collard
An outside director is a member of the board of directors or advisors who is not part of the executive management team. These professionals are sometimes referred to as independent or non-executive directors. They are not employees of the company and are differentiated from inside directors, who do serve as executive managers and/or corporate officers.
Outside directors are advantageous because they rarely have conflict of interest and they often see the big picture differently than insiders. While corporate governance standards of public companies require a certain number or percentage of outside directors because they are more likely to provide unbiased opinions, private companies are normally left alone — but, I highly recommend that unbiased advice.
In today’s business environment, smart organizations frequently seek outside expertise. Traditionally, companies invited advisors to join their board of directors. There is now, however, more risk to these directors based upon legislation (Sarbanes-Oxley in the US, and other laws around the world). While there is formality (shareholder reporting, responsibility, risk), liability, and more expense (D&O insurance, etc.) to a board of directors, there is a budget friendly alternative in the form of a ‘board of advisors’ who is beholden to management. The main difference is in where the fiduciary duty lies: to the shareholders or to management. Regardless of which vehicle you use, there is great value to be obtained by hiring an outside director.
Why add outsiders to your board of directors or advisors?
- Outside directors can be a low-risk, low-cost, but valuable resource. They bring a new set of skills that will produce benefit for your company.
- Outside directors are on your side. Unlike other outsiders to whom even a private company must answer, like banks and insurance companies, the IRS, OSHA, EPA, etc., these advisors answer to you.
- Outside directors add credibility. When it comes time for a liquidity seeking event, like new financing, selling the company, or IPO, outside directors send the message that you are a professional serious organization with guidance.
With a board of directors, your company immediately gains legitimacy, and a panel with expertise that you probably don’t have “in house.” Selecting board members from the business community can also bring greater awareness of your company.
Benefits of Outside Directors
|Independent Perspective||Challenge Management,
|Strategic Thinking & Planning||New Directions, Transitions,
|Experience & Objectivity||Been There, Done That,
Oversee Performance & Risk
|Contacts||Partners, Customers, Suppliers, Personnel, Lenders, Investors|
|Capital Infusion||Raise Money, Restructure,
Create Offering Package
|Transactions||Prepare Company For Sale,
Negotiate The Deal
Create a culture and structure that will withstand third party accountability. Start thinking as a serious growing company and prepare for a potential future life as a public company.
The day-to-day events in a business often distract the CEO’s time and energy. It is easy to get wrapped up in the ways and means of running the operation, while losing track of the bigger picture. The sounding board provided by an outside advisor can certainly help ground the CEO in real leadership duties. Typically, a board will focus on protecting the unique value of the company, but they often add much more.
The CEO needs advice from outside directors who care about the company’s success, but who can view things from a distance and a different perspective. The CEO will be well served by adding board members who can challenge him or her and the decisions that they are about to make. When the CEO only listens to “yes” men they are essentially on their own, and new ideas don’t enter the decision process. You want strong board members who are not afraid to offer advice, guidance, feedback, and argument on issues. Employee board members may be in fear of losing their job if they speak up.
Create the opportunity for people to disagree with you and confront your thinking. This is a must if you want to grow. Honest debate from knowledgeable people, who are on your side, will produce results that you can rely on. If you fear this approach, what are you hiding? Smart people learn from advisors who don’t threaten their position, hence the need for outside independent thinkers.
Strategic Thinking & Planning
Outside directors should constructively challenge and contribute to strategy development, implementation, and infrastructure. The board is the perfect way to help set aside your tactical perspective, and force you to work on the strategic business issues.
Planning requires fresh thinking and business analysis, even if the result in some areas is to continue business as usual. The value is in the process, which requires all participants to think through and understand the strategy. Put in place contingency plans for those events that we hope will never occur, but somehow always do happen.
Once strategy is set you have defined where you want to go. Now communicate that message for all stakeholders to see and understand by using a mission or direction statement. There is nothing quite so effective as designing compensation and incentive plans that are paid out when goals are met, but, don’t pay for nonperformance. Incentive-based management is extremely effective, but be cautious that you have set the right goals, because if not, employees will take you in unplanned directions.
Experience & Objectivity
The very nature of growth implies that a company is going where it has not been before. It is refreshing to make that journey to new opportunities with the help of an advisor who has been there, and done that before. Their objectivity can help you through the obstacles.
When independent observers scrutinize the performance of management in meeting goals and objectives, and monitoring results compared to long term valuation goals there is real value in their participation. Outside directors should satisfy themselves that financial information is accurate, that financial controls are in place, that internal reporting is at the right levels and prepared often, and that risk management systems are in place. Make sure that the company complies with laws and regulations.
While most companies follow a well understood life cycle, it is extremely helpful to distinguish between crises that are normal based upon their stage in that life cycle versus crises that are troublesome because they are unexpected. Look for business advice from experts who have experience in these situations.
When transitioning into new markets it helps to have someone on your team that has both gone through transitions before and understands the idiosyncrasies of the new market. For instance, doing business with the federal government is quite different than doing business in commercial and international markets. If you want to enter into new markets have team members with diverse experiences to help guide the way.
Your contact book doesn’t include everyone. Every company needs help when it wants to grow, prosper, or turn around. Outside directors can extend the company’s reach by using their own contact network, colleagues that can get involved to provide guidance and resources.
Rely on these contact introductions to bring in new customers, which will drive sales revenue. New suppliers can favorably impact cost-cutting of materials, which drive a better bottom line. Strive for strategic teaming relationships to promote growth.
Contacts can be influential in bringing resources not previously available. They can attract new talent into the company at all levels, and provide a new set of eyes and ears during the interview process. Locate other independent directors. Improve the management team. Grow the sales force and distribution channels. Introduce and improve marketing, penetration, and Internet presence strategies. Entice operational experts to produce product and services. Lure innovative people who can embellish research and development.
Outside directors often have a database of contacts who can supply capital, both in the form of debt (lenders) and/or equity (investors). This means that you can get in front of many financing resources quickly once an expression of interest or offering package is ready. The key is to document the plan describing where you want to go and why you will succeed, put that in summary and detail form, describe assumptions and risks, and present rate of return projections. In other words, present your opportunity in terms the investor or lender wants to see —you are the product. Investors are in this for returns on their investment.
You will need financial history of operations and projections of future plans to satisfy the stringent criteria of financing sources. Begin this process early so that you are prepared when the time comes. I favor a 2 page (executive introduction), 10 page (present the deal opportunity), due diligence (details) approach, to step potential interested parties through the process.
If a turnaround is in process the task is more complex. While there is an overabundance of capital available, you will have to demonstrate that you have indeed made changes at the company. Changes in management, control systems, strategy, etcetera are a must. A board of directors demonstrates that you are up to the task of reporting to an outside financing entity.
Like with raising capital, outside directors often have a database of contacts who both have deals for acquisition and who are looking for opportunities to buy. This means that you can get in front of M&A dealmaker resources quickly once an offering package is ready.
Prepare for that future liquidity event. The best time to sell a company is when a buyer wants to buy and has cash, which could come when you don’t expect it. Be prepared and work toward ultimate valuation throughout the process of growth.
Outside directors are often adept at introductions and negotiating deals. They then elevate you (management and the board) to the decision-making role.
Hire that outside director.
About the Author
John M. Collard is Chairman of Annapolis, Maryland USA-based Strategic Management Partners, Inc. (410-263-9100, www.StrategicMgtPartners.com), a turnaround management firm specializing in advising boards of directors and private equity investors, corporate renewal governance, interim executive CEO leadership, asset and investment recovery, and investing in underperforming distressed troubled companies. He is a Certified Turnaround Professional, Certified International Turnaround Manager, Past Chairman of the Turnaround Management Association, Chairman of Association of Interim Executives, serves on public and private boards of directors. Participated in 45 M&A transactions worth $1B. He is inducted into the Turnaround Management, Restructuring, Distressed Investing Industry Hall of Fame.
How to use data to protect and power your business
By Dave Parker, Group Head of Data Governance, Arrow Global
Employees need to access data to do their jobs. But as data governance professionals, it’s our job to protect it. Therefore, we must perform a fine balancing act to weigh robust data protection against the productivity of workers who need the data to maintain business-as-usual working processes.
Data grows exponentially, and most organisations will admit that they simply don’t know what data they have, where it is, and the controls that exist around it. This creates 2 challenges:
- Burgeoning amounts of unstructured data makes the business increasingly vulnerable from external attackers or internal data breaches.
- Because data is the key to understanding a customer’s wants and needs, if the business can’t identify its data and unlock its value, it’s at a competitive disadvantage.
As a European investor and alternative asset manager, here at Arrow Global we take care of £50bn of assets and own a data estate exceeding 160TB. How we manage our data is key to our success. We understand the difficulties involved in opening up environments to allow people to work productively, while at the same time locking them down to protect our organisation.
When it comes to analytics, I believe that Arrow is highly proficient because we employ a talented team of data scientists. But even for us, the sheer volume of raw and processed data, that resides in both our structured systems and unstructured data repositories, has the potential to put our business at risk.
We know there’s always more that can be done to strengthen our security posture and ensure regulatory and contractual compliance, while at the same time using our data to drive the business forward.
Data protection isn’t just about compliance
For many organisations, data protection has centred on demonstrating compliance with the GDPR. At Arrow, our efforts have gone one step further to include our contractual exposure.
Being a more mature data organisation, we had previously tried to develop an application in-house to manage our data estate. However, with 160TB across the company in production data alone, we simply couldn’t achieve the scale we needed to handle the sheer volume of data. Of course, the volume is just the start – once you know what data you have, you then need to be able to categorise the data and put it into a structure, so the business can analyse it for a specific use case.
We knew we needed to go to market to find an industrial-strength data discovery product to replace our in-house application. By aligning our choice of product to our overall IT and change strategy, meant that ultimately, we ended up with a far better outcome than we’d anticipated.
Position data as both a risk and an asset
Data touches every part of an organisation, so when it came to building a business case for buying-in a data discovery software platform, we approached it in a way that would speak to different people at the same time. We did this by posing the question:
“What do we want to do with data in a way that is GDPR-compliant, contractually-compliant and enables us to better service our clients?”
These are the black and white tests of data governance – to recognise the importance of securing and protecting data. They’re applied in a way that enables us to commoditise data and use it to drive the business forward, by forcing us to consider how we would use the data – for example, creating value-based pricing for our clients.
In aligning the business case to initiatives that were already priorities within the boardroom, we knew that we’d gain the attention of the senior leadership team and it would be easier to get the buy-in and budget we needed. And in the end, everyone wins – we get what we need to protect the data, and the business gets to distil the data’s value to better meet our customers’ expectations.
Get visibility of data at scale
For us, things got really exciting once we were able to see all of our data at scale. We chose Exonar because it allowed us to discover our data in ways that other products couldn’t. And the interface between the user and Exonar meant that everyone – both technical and non-technical users – could understand the technology and the findings it revealed.
When we saw exactly what data was in the estate, where it was and who had access to it, data security became much easier and the risk of data being compromised was dramatically reduced. We can see exactly where the vulnerabilities are and restructure how our data is stored to strengthen security. Then over time, we can use search, workflow and analysis to optimise the infrastructure and continually identify new areas to improve.
Commercialise the data
From a wider-business perspective, once people can see the data, they can start asking “What if…” to query it and distil its value. But it’s more than just the data itself. It’s not uncommon for data relating to the same thing to exist in unconnected systems across the business. For example, customer interactions and incidents or events.
Exonar is capable of joining the dots in disparate data sets. By stitching these data sets together, we can get a better overall view of our customers and use the outcomes to think of new, different or better ways of serving them through enhancing or adapting our offerings.
Why other financial services businesses should also take a smarter approach to data
- By changing the way you approach data, you can use it to protect and power your business and the people you serve.
- By positioning data as both a risk and an asset, you elevate its position to give it priority in the boardroom. Ultimately, it’s data that helps the business make informed strategic decisions about how to strengthen its competitive advantage.
- By gaining visibility of data at scale, you can see exactly what data you have and where it is. This gives the business confidence about the actions needed to ensure it is secured in both a regulatory and contractually compliant way, and that people are doing the right thing with data at all times.
- And joining different data sets provides you with a single view of ‘X’ within your data, no matter where it is. Helping to support your wider-business strategy and priorities, it gives you the information you need to secure a business advantage and generate value.
How business leaders can find the right balance between human and bot when investing in AI
By Andrew White is the ANZ Country Manager of business transformation solutions provider, Signavio
The digital world moves quickly. From keeping up with consumer behaviour patterns, to regulation and compliance, the most successful organisations are always on the cutting-edge of technological developments.
However, when it comes to investing in artificial intelligence (AI), a hard and fast strategy does not guarantee a top spot amongst the league of tech greats. Instead, it pays to take a considered approach to balancing reliance on automated processes with a human touch. Why? Because creative and strategic thinkers are the true propellers of innovation; automation is simply the enabler.
The International Monetary Fund (IMF) developed the ‘Routine Task Intensity’ (RTI) index as a measure of which processes are likely to benefit most from automation. According to this metric, jobs requiring analytical, strategic, communicational and technical skills score low on the RTI index, while simple, repetitive tasks scored highly.
The lesson for business leaders here is simple; your digital investments are just as important as your stake in talent. When deciding which processes to automate, start simple, and remember to value the skills and potential of your people.
Keep customer-centricity at your core
Customer-centricity means that every business decision, dollar spent and new hire is centred on one question: how does this benefit my customer? Investments in AI are no different. To be truly successful, they must have a customer-focused outcome.
Where companies get this wrong is by implementing cost-saving measures or ‘copy and paste’ software that fails to improve the customer experience – often having the adverse effect.
Take the virtual chat-bot, for example; if implemented poorly, it can send your customers into a frustrating and seemingly infinite cycle of dead-ends. The modern consumer is far too digitally savvy for this shortcut, and will quickly move onto the next merchant offering a more seamless customer service experience.
To guarantee your investments are delighting rather than infuriating your customers, it helps to take an outside-in perspective of your business processes, aided by Customer Journey Mapping (CJM).
Before you commit to digital investments, CJM can trace and map each customer touchpoint, signalling pain points or conversion rates throughout their journey. These data-driven insights lead you to the areas that would benefit the most from automation, instead of implementing a broad band-aid solution.
Avoid the ‘set and forget’ method
When investing in enterprise-wide AI, the ‘set and forget’ method rarely works. Real transformation requires an ongoing dedication to refining and improving AI-driven processes, as well as adapting them to the evolving needs of your customers. This is the best way to achieve customer loyalty, by proving that your organisation listens to, and understands its users.
A human perspective is invaluable here, paired with process mining – a method that thrives on finding process inefficiencies – to create a consistent feedback loop of improvement.
During periods of uncertainty, customer loyalty is everything, so aim to protect it at all costs.
The power of your people
The rise of automation can be linked to the corporate world’s obsession with speed and efficiency. However, the psychology behind this goes deeper than being the biggest and fastest producer; it’s also about reallocating resources into attracting and retaining the brilliant minds that drive companies into the future.
When communicating digital change, it’s critical to highlight the valuable impact AI has on augmenting jobs; removing the burden of mundane, repetitive tasks and allowing for more strategic skill-sets to shine through. For lower-skilled workers, invest in upskilling or re-education where possible.
Successfully rolling-out digital transformation plans means that every employee across all tiers of your company understands the value of AI. The starting point here is education to achieve buy-in. Change communications must be accessible, constructive and value-focused, supported by key culture influencers who champion automation within teams.
Enterprise-wide buy-in is an important element of refining and improving digital processes, as cross-functional collaboration can offer valuable insights into common pain points or inefficiencies ripe for automation. Supported by process mining, collaboration provides a holistic view of how each investment will impact other processes. There is no point investing in automation that streamlines one process and makes another more people-centric, so be sure to take a balanced approach to your investments.
Remember, AI is not about creating an army of robot workers; it’s about increasing efficiency and productivity so that an organisation, and its people, can work smarter.
Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger
By Dr.Roger Firestien, Author of Create In a Flash.
The fight, flight, freeze survival response – or FFF for short – is designed to mobilize our brain and body to fight an enemy, run from a tidal wave or freeze to hide from a predator.
FFF is how humans react when they encounter a dangerous situation. It is a primal response that happens instinctively even before we are able to think about the situation we are confronting.
The FFF alarm causes our brain to focus on negative memories, probably to scan them to avoid repeating dangerous situations and negative outcomes. We get tunnel vision as our pupils dilate to increase our focus and long-range vision, but as a result we lose our peripheral vision.
Humans use the FFF response and so do organizations.
When organizations encounter dangerous situations, like, say, trying to survive a global pandemic, they can respond by either fighting the situation, fleeing from the situation, or freezing and waiting for the situation to pass.
I would like to propose a fourth strategy for organizations to deal with a danger like the pandemic. It is the fourth “F.” The farm response. More on that later.
What kind of organization is yours?
The fighter organizations were the ones that fought the idea of a global pandemic or pushed back against the research that reported how serious the virus was. Think of the meat processing plants that didn’t provide proper protective gear or the religious organizations that refused to take a break from large services.
The results were catastrophic for the organizations and deadly to the employees and worshippers.
It is pretty easy to identify the fleeing organizations. You don’t see them anymore. Unfortunately, this is the organization that just doesn’t have the resources or the energy to fight. You will recognize them by the “For Rent” signs in the windows of the buildings they used to occupy.
The organizations that freeze are a little more difficult to identify. They are still around but are frozen by fear. They are the organizations that, although they are in a position to move forward, are too frightened to take a risk or even look at the periphery of their business. Their tunnel vision blinds them to opportunity. The freezers hide and wait for the danger to pass. They are the ones who miss out on possibilities.
For example, if you are in the business of supplying concessions to sporting events, airports and national parks, your business is in deep trouble now. So, what are some ways to keep people buying food and drinks with so many venues closed?
Many national parks are now open and visitors need to eat. How can you sell food while supporting social distancing? Answer: Sell picnic meals to your patrons. And, sell a blanket that commemorates the park that diners can spread out and have lunch while social distancing with their families. Then, they’ll keep the blanket that reminds them of their visit to the park.
Sound like a good idea? It sure does. You can keep your park concession business, allow people to social distance and add to your product line with that commemorative blanket. Did the company implement the idea? Unfortunately, they did not. They froze and missed the opportunity.
However, businesses are finding ways to optimize their organization and capture opportunities. They are the farmers. The farmer organizations study the situation, just like farmers study the weather and the land. They look at the resources available to them and get to work.
Farmer organizations pivot and get creative.
Distillers, who before the pandemic, were making vodka, whiskey, gin and other spirits quickly changed their operation from distilling booze to distilling sanitizer.
Telemedicine, which had limited acceptance before the pandemic, almost immediately became the accepted way to deliver care. Now, the doctor comes to you.
Fitness trainers are conducting their sessions via Zoom or in person outside on sidewalks in front of their gyms so they can social distance.
My favorite ranch, SK Herefords, sells their beef at local farmer’s markets in the Western New York area. This spring when the large packing houses shut down and grocery stores were limiting the amount of beef customers were able to buy, my farmer friends were there at the markets with locally produced farm-raised beef. Sales soared and demand skyrocketed.
Why? The farmers were ready. They used their resources and were not afraid to optimize them in a rapidly changing and volatile environment. Farmers live with constantly changing weather conditions and market prices and are accustomed to rapid change.
To operate with constant change, all of us, like farmers, need to be constantly creative. Phil Keppler, my philosopher farmer friend from SK Herefords says, “Creativity helps you to not look at things as a problem. It’s trying to find the solution – and that’s the exciting thing about it. Things aren’t problems anymore. It’s just difficult situations and you’re trying to find a solution to that situation.”
A good mindset for what our world is experiencing now… it’s a difficult situation and we are creating solutions daily.
Fight, flight, freeze or farm. What kind of organization is yours? And, what can you learn from “the farmers?”
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