Today’s guest is Stephanie Olexa, a founder of Lead to the Future, who started off her career as a scientist and then evolved into a business owner and in this episode, you will learn about the value of designing the right type of board and using them effectively to build a sustainable business.
She has a PhD in Biochemistry from Temple University and an MBA in finance from Lehigh University. After spending ten years in large corporations, Rohm and Haas Company, then Air Products and Chemicals, she founded her own company, Benchmark Analytics, an independent analytical testing lab. She grew the company from a startup to a national organization doing business in 26 states through organic growth as well as multiple acquisitions.
After 18 years as the sole owner, she sold majority interest to an Equity Investment Firm. She stayed on as President for two years, doubling the size of the network through additional acquisitions. Then, as a member of the Board of Directors, she helped to guide the direction of the company and the resulting sale of the network four years later. She spent two years as the Executive Director of the non-profit organization, Center for Vision Loss, with the primary purpose of merging smaller agencies for the blind into a stronger, multifunctional non-profit organization.
Currently, she is a consultant for privately-held and family-owned businesses in the areas of succession planning, strategic business sustainability, and governance. She pioneered the program Stewardship for Sustainability and she developed The Business Sustainability Score Assessment for family-owned businesses.
In today’s episode you’ll learn:
- What is the key difference between a Board of Advisors and a Board of Directors?
- What you need to know before even start putting a board together?
- How to build a Board of Directors correctly?
- What’s the cost of putting a board together?
- What if you build the board wrong?
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business podcast.
Today, we’re in for a real treat. I recently had an interesting phone call with Stephanie Olexa. We were talking about Boards. Folks who have known me for a while will say I’ve been, really, a big fan of Board of Advisors but not Board of Directors. Stephanie actually changed my mind on that. I asked her to be on the podcast to talk about why boards are better than advisers. That’s what we’re going to talk about today. Let’s bring Stephanie in and we can get started.
Hey, Stephanie, how are you today?
Stephanie: Good morning. I’m wonderful. How are you?
Josh: I’m well. Thank you.
Stephanie, could you give us a little bit of your background first because it’s an interesting one on how you managed to start working with Board of Directors which looks like it’s an outgrowth from your business path.
Stephanie: It is. My business path was a little bit circuitous. I started off my career as a scientist and then evolved into business. In 1989, I started my own company, grew that for about 20 years, and then sold it to an equity investment firm. After I sold the business, I became involved with the Board of Directors for that company. Also, for a lot of other small business, I started doing consulting work after I sold my company and became a fellow with the National Association of Corporate Directors in order to boost my education on how boards work and their role in a company.
I’ve been working for about that past seven years with small businesses, usually companies under about $150 million in sales, and helping them to design sustainability. Sustainability includes governance. A Board of Directors, to me, seems like a most integral part of having a sustainable business.
Josh: One of the things I think that’s interesting is you say small companies under $150 million. For most of the people who’d be listening to this podcast, that will be a gigantic company. What is about the smallest company that a Board of Directors makes sense for and why would that be true?
Stephanie: I think size is not a deciding factor for whether not a board is important. The important factors are the vision of the owners, or entrepreneur, or shareholders and where they want to take the company. I’ve been on boards for companies that were startups, for companies that were $200,000 a year in sales and everything in between. It really depends on where the entrepreneur and the shareholders want the company to go. And also, if they want it to be a sustainable business and to succeed beyond just their skills.
Josh: Okay, when you say sustainable business, most people— and I have this problem but– they might be sustainable businesses, most people think that a sustainable business, when they hear that term, they talk about environmentally sustainable. I’m assuming you’re taking that past environmental sustainability?
Stephanie: Absolutely. I’m taking it to the definition of, “This is a business that can survive and thrive through times of change and last for the long term.”
Josh: My definition is, “A sustainable businesses is one that lasts past the owner that has it right now.”
Josh: We’re not terribly far off.
I’ve talked a lot about having Board of Advisors. I’ve always maintained that every company should have a Board of Advisors. You’re actually taking that up a step to Board of Directors. My issue, which we talked about when we first talked a few weeks ago, was that, “Well, okay. That’s great but most business owners I know don’t want to cede control to a Board of Advisors.” Why is that a big mistake?
Stephanie: Well, first, I’d like to bring out a key difference between a Board of Advisors and a Board of Directors. A Board of Advisors are a group of people who are selected by the CEO or the president. They serve at the pleasure of that CEO. Their advice is just that, it’s advice. It’s not a requirement that the CEO follows that. A Board of Directors, they serve at the pleasure of the shareholders. That’s a key ingredient because you could have shareholders who are not the president. The Board of Directors, they are responsible to act in that best interest of all of the shareholders equally – the major shareholders as well as the minor shareholders. This key difference means that the Board of Directors is guiding the direction of the company for the benefit of the organization as well as for all the shareholders.
Josh: Now, when I hear what you just said, what’s coming to mind is the best interest of the shareholders is to make as much money as possible. In fact, I would almost say all business owners I know, they talk a good game but they don’t actually do that. There are lots of other issues which they think are important too which brings up, when that does happen and the owner actually admits it to me, I sometimes ask them, “Well, why don’t you become a benefit corporation?” Do benefit corporations and companies with Board of Directors make sense to combine?
Stephanie: A Board of Directors is responsible for guiding the company in the direction that the shareholders want. You’re right that sometimes that means drive for profit. Sometimes it means drive for value. In family businesses, sometimes, that means drive to keep the company privately held and family owned. The best interest of the shareholders is something that the Board needs to completely understand and to follow. For a benefit company, that takes on the additional role of acting in the best interest of the other stakeholders as well as the shareholders.
Josh: Do you see many benefit corporations have statutory boards?
Stephanie: Absolutely. I think they see it as a very important part in order to help guide them on their mission as well as to run the business in a sustainable and profitable manner.
Josh: Cool. I actually am very fond of benefit corporations. I think, especially if you have millennials working your company, it sort of fits with their belief system about how things should be.
Let’s pivot a little bit. Okay, so I’ve decided I want to have a Board of Directors— by the way, you have convinced me that a Board of Directors makes more sense than a Board of Advisors so congratulations with that.
Stephanie: Thank you. That’s a big win.
Josh: Well, I don’t know if it’s a big win. I actually pride myself on being relatively flexible that, when someone presents me compelling information, I am willing to change my mind and say, “I was wrong about that and you are right.” In this particular case, I would say that’s true with you is that you are right. My attitude toward Boards of Advisors is still— well, if you’re not going to get a Board of Directors, this is okay but it’s not as good. That, I would say, is absolutely true.
I want to build a Board of Directors. I have three questions around that. (1) How do I do it correctly? (2) How much does it cost me to do this? (3) What if I really blew it and I build the board wrong?
Stephanie: Well, to build the board, it takes some time, and some dedication, and effort. I usually advise clients to take it in three steps. The first is an educational piece – really learn what boards are about, what they can do for you and exactly how you want them to operate for you.
Josh: Let me just ask a question right in there. How do you learn that information? Where do you go for that?
Stephanie: There are organizations that you can go to: the Private Directors Association, the National Association of Corporate Directors, and other associations like that to begin your own educational process. But it also helps to have someone working with you and your team – your shareholders as well as your executive team to make sure everybody is on board. Take some time with that process. The end result of that step is that you write a Board Charter. That is a document that is a contract between the shareholders and the members of the board. It outlines their roles, responsibilities and their boundaries so they know exactly what you expect of them and where they can and cannot operate. That sets the stage for a good board.
Josh: That’s how you do a board. What’s the cost of putting a board together?
Stephanie: Well, if you take it from your decision to have a board to the recruitment stage – selecting them, it could cost $10,000 to maybe $20,000 to $25,000 to go through that journey. But the journey is important because then you end up with a board that matches your needs.
Josh: I spend $10,000 to $25,000 putting my board together. What does it cost me, on an annual basis, to have a board because I’m assuming these people don’t work free?
Stephanie: They don’t. They do expect a fee because their time is valuable but they are also cognizant about the size of the company and their desire to help other businesses. And so, a Board Director usually would expect a fee for a small to mid-size company of about $10,000. A company that’s in that $50,000-range in terms of sales may pay $25,000 for a Board Director. Of course, larger companies pay much larger fees, but I think the fees are negotiable because in many cases you’ll find directors who are interested in participating and helping other businesses just as much as they want other people to help them, so the fee becomes less important to them.
Josh: Do you see, a lot of times, that the board fees are actually options in the company that they’re being directors for?
Stephanie: That is something that is frequently offered either options or phantom stock in the organization. That’s generally not true if it’s a family-owned business because they don’t want to dilute the stock with non-family members, but in those cases, they can use phantom stock.
Josh: ESOPs are required to have independent Board of Directors. It’s part of what they do. My experience with ESOPs is they generally do a really pretty bad job of assembling boards. Do you have any thoughts on why that would be true? Is it lack of knowledge with the people who are putting ESOPs together or is it just nobody really thinks about it?
Stephanie: I suspect that they’d don’t think about it as the valuable tool that it can be for them. They skip the initial step of the educational piece and the selection piece. I think they also think that, once a board is in place, you’re done, but that’s just the beginning of the work. Growing your Board in terms of their knowledge and understanding of your business and their knowledge of being on a board is a critical piece that is frequently overlooked. Board continuing education, board evaluation and board refreshment is very important especially with an ESOP company.
Josh: What is board refreshment? I think I know but I’m curious on that definition.
Stephanie: I am a very strong proponent of board terms. A member who joins the board would have a set number of years that they will participate in that Board. On a routine basis, those people leave and new people are brought in. Board refreshment means that you get new eyes and new ears on your situation.
Josh: What will be the optimum time somebody should be serving on a board before they’re replaced?
Stephanie: I usually recommend terms of three years with two or three renewals available. A good board member could stay for six to nine years before they’re replaced. But you always want your board members to also have overlapping terms so you don’t end up in year six or year nine with all of your members disappearing. You want to replace one or a small percentage of your board members each year.
Josh: When I’ve put together Board of Advisors in the past one of the things I’ve always asked the owners of the company, while we’re doing this— and I’m curious whether this would also be true for a Board of Directors is, I think having a Board gives you an opportunity to get talent that you wouldn’t want to have full time nor could you afford to have full time but they bring in a specific skill set that helps grow the business, that the business does not have internally. Am I missing something when it comes to thinking about who potential board member should be for a statutory board?
Stephanie: I think that your approach is very valuable. Look for skills and talent that match, complement but don’t overlap with the people that you have in-house. One of the things for a fiduciary board that I usually recommend you look for, in addition to those technical skills, or market, or industry background are skills in working on a board because that is a very particular type of experience that a good board member will understand. Look for those soft skills of understanding how to work at that kind of level.
Josh: What kind of skills would you need to be to be a successful board member? Asking from a selfish point of view right now.
Stephanie: Well, of course, you want to start out with some of the skills that you want for your company, some market or industry experience and some technical background. But you also want individuals who are very good at strategic thinking. I think of it as the zoom in/zoom out approach. Your leadership team zooms in and your board zooms out. Ask those tough questions about “Where do you want this business to be in 10 years? What do you need to do now in order to position yourself for 10 years from now? Who should be on your team?” Those strategic issues. Bringing on board strong, strategic thinkers who are good and competent at working on a team because a board is a team and who can interact with a management team without stepping on their toes. They understand the difference between guiding and directing and governing an organization versus running the organization.
Josh: I’m going to do a little pivot here because this is something I think that we haven’t talked about yet but, in my opinion, is a starting place for literally any business which is, where do values fall in here as far as choosing board members?
Stephanie: I think it’s critical. You have to select board members that understand the value of the shareholders and are willing to make those values at the forefront so that they build on the values and they help to implement them. I usually say, the shareholders figure out the why and the board is responsible for the what and the how. They translate that why into the what and the how and the leadership team executes the how.
Josh: Interesting. That would mean, before I even think about going out and putting the board together, I better get pretty clear on what my values are for the company.
Josh: Do you help people do that before they even start down the road of putting a board together?
Stephanie: I think that’s part of the educational peace. Why do you have a business? Why do you have this business? Those are two key why’s that the shareholders really need to clearly articulate. They can present that to the Board and ask those potential board members, “Are you comfortable supporting these values?”
Josh: As we’ve been talking, we’ve really been talking about shareholders not shareholder – meaning singular. When we had our conversation a couple weeks ago, I left with the impression that even if you’re single shareholder in a company and your company is of a size— I know that you do them very, very small. I would consider that as sort of an outlier. I think that you probably need to have a bit of a size before you go down that road just because of the expense and time involved in knowing how small private business are involved mostly in tactical and almost never strategically. That’s my reason behind that but I might be wrong, from my experience. With a single shareholder, should they have a Board of Directors?
Stephanie: Absolutely. You brought up the point earlier that maybe a single shareholder doesn’t want to give up control. When I was thinking of starting my business, I wanted to be an entrepreneur. Being in control was one of reasons I wanted to do that. After I started the business, I realized that as a sole shareholder, the only owner, you are not in control.
Stephanie: Right? The market’s in control. The employees are in control. The bank is in control. You are not. That’s a fantasy. What you are is a running juggler. This new extreme sport of juggling while you are doing a marathon. That is what the solo business owner is doing. And so, what better than having a Board of Directors to help you keep all those balls in the air. Maybe, they’ll sometimes catch one for you and throw it back up. When you are alone, that is a critical time to have a really strong and integrated Board of Directors.
Josh: That is so true [laughs]. I love these people who own businesses by themselves, “Well, I built this by myself.” No, you didn’t build it by yourself [laughs]. It was a village that was required to build that [inaudible 00:19:45] next presidential candidate. In my experience, in all the businesses I’ve been involved in, it’s never been me. It’s always been the few folks I’ve worked with who made me successful. We need to recognize that.
Stephanie, we’re out of time on the podcast itself but I would like to continue on Facebook Live for a while because I have some other questions for you about your assessment that you put together and I’d like to have you talk about that a bit, if you have a few minutes.
People listening to this, I’m sure, are going to be interested in finding you. How would they go about doing that?
Stephanie: I have a website. My business name is Lead to the Future. And so, the website is www.leadtothefuture.com. If you’re interested in the business assessment, it is called The Business Sustainability Score. That has its own website www.businesssustainabilityscore.com.
Josh: I also have an offer for you. This is my book which came out in January. It’s a great little book. It’s a parable about a dysfunctional business family. I like dysfunctional businesses. It’s really easy to get. All you have to go to is www.sustainablethebook.com. There, you’re going to see a big orange button that says “buy the book.” You click the button. Pay for the book.
Now, you get two bonuses for that, (1) a free 20-minute conversation with me about a problem you’re having or an opportunity you’re not taking advantage of. The second is, I wrote a 27-page how-to guide. Because this is a parable, it doesn’t actually tell you how to do the stuff in book. My little e‑book, I wrote along with it, does. If you’d like to get a copy of the book, it’s there. It’s for sale. It’s $15.95. People who read it tell me they liked it a lot.
This is Josh Patrick. You’re at the Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at email@example.com.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.