IMPROVING COMMUNICATION AND COLLABORATION FOR BOARDS OF DIRECTORS

Article by Herb Rubenstein, President, Sustainable Business Group

Introduction

The typical board of directors “communication system” rarely gets beyond simple email systems. Face to face meetings, and large board books sent by overnight delivery a day or a week before a board meeting are still common. While there is nothing wrong with big board books, or even face to face meetings, the new addition of outside, independent directors to many boards strongly suggests that new communication and collaboration systems will need to be deployed to bring the “outsider” into the “inside.”

As more and more boards are starting to realize how uninformed they are about key facts and information essential for proper organizational governance, boards are starting to realize that they need new communication systems to keep board members up to date with important information so they can help govern the organization in an informed, timely manner. This article addresses some of the new features of “virtual office” now available to assist boards of directors communicate effectively and efficiently in each area of governance. Our research here at Growth Strategies, Inc. confirms that improved communication systems are needed for boards of directors in both the for-profit sector and in the non-profit sector.

Independent Board Members

Well before Sarbanes-Oxley, the nonprofit world had many independent board members (people who were not part of the paid management of the organization). However, often many of these independent board members of nonprofits have not been well informed about many of the activities of the organization, including the financial compensation to the senior staff. Recently, due to recent scandals implicating boards of directors, many for-profit organizations have been adding substantial numbers of independent board members. Both “the law” and shareholders are becoming much more demanding on boards to actually govern, control and intelligently direct the companies and nonprofit organizations where they serve on the board.

Old communication patterns, even when they were supplemented with regular emails and big board books, have never been, and certainly are not now, adequate to meet the need for:

  • instant communication between board members
  • detailed analysis and online access to important documents
  • rapid dissemination of the views of the board members to other board members and senior management (via polling and voting).

In addition, just adding email to an old board pattern of communication can compromise the security and confidentiality a board of directors requires.

Fortunately, there are now coming onto the market software products that can address these critical communication issues. These software packages require some training, especially with technologically challenged board members and staff. However, our experience is that the software on the market are packages that every board member and staff member can learn easily and can use effectively to become a better board member.

The Role of the Board of Directors

Boards of Directors are collective decision makers. They vote, they discuss, they analyze, they conduct research on key issues, they divide their tasks among committees, they govern, and they are supposed to direct the major activities of every company, educational institution, and nonprofit organization they serve. The days are long gone when a CEO/Chairman can or should come into a board meeting and just tell everyone what should be done. The companies where this is still true are being severely challenged by the new demands put on boards of directors in both the for-profit and nonprofit sectors.

Given the significant legal and financial responsibility that members of boards of directors have, and the growing legal personal liability each faces when they do not ensure they are properly informed, it is no accident that boards are looking for ways to stay on top of all of the key information and activities of their organizations. Modern software can give board members:

  • instant access to substantial information
  • enable them to communicate with each other more easily,
  • document the views of each member
  • record votes
  • create a virtual board room with stored documents
  • properly direct emails
  • organize online discussion forums based on which group or committees need to be involved.

By minimizing the irrelevant information and better organizing how information flows to just the right people, these new communication software systems help board members to minimize clutter and maximize their participation as board and committee members.

Currently scheduling face to face, or conference calls, or any “synchronous” activity among board members usually requires a staff person or one board member’s secretary emailing or phoning other board members’ staff or secretaries to find a slot that each person on the board currently has open. Recently, one organization’s staff prepared an excel spreadsheet with 69 options for the next “conference call” board meeting. The staff then sent each person on the board (about 12) the spreadsheet and asked the board members to note their preferences on the spreadsheet. The dozen board members then sent the annotated spreadsheets back to the staff and the staff tallied the responses. Then, the staff sent out a notice to the board members informing them as to the next date and time for the conference call.

This took hours of staff time and days of calendar time to pull off. Yet, since board members are on different scheduling systems — this scenario represents the current state of the art in meeting scheduling. The challenge is that members of boards come from many other organizations and they use whichever scheduling software their primary employer provides them. Their computers are not networked, except for the web, and this gives us the first clue as to the major advantage of the new communication software systems — they are web based and can transcend the integration challenges that people face trying to use disparate technologies across multiple companies or platforms. .

This scheduling nightmare is taking place in every city in the US today. New communication and collaboration software handles multi-source scheduling situations quite easily and efficiently and ends the phone tag, email tag, and wasted staff time now inherent in scheduling board and committee meetings.

The “board book,” is another relic of the old style board communication system. The board book is expensive to produce, especially when you take into account all of the staff time necessary to get it into final form and overnight it out to the board a few days or a week in advance of the board meeting. More importantly, it can fail in its essential mission since information, data, and events now can easily overtake a board book in the week right before the board meeting.

Recently, in a nonprofit organization with annual revenue in excess of $110 million, key financial reports were not placed in the board book or sent to the board in advance because the data could not be completely verified twenty days before the board meeting, the cutoff date set for the CFO to submit information for the board book. Modern communication software systems like HyperOffice, (www.hyperoffice.com), or similar software allow such documents to be posted and available to all board members via a secure “shared documents” or “shared workplaces” section that is web based. These documents can be posted whenever they are properly verified and, therefore, the arbitrary cut off date for the production and physical transfer of a “book” to board members is completely eliminated.

Shared documents or shared workplaces, using the web as the backbone or access medium, allow people located in different geographical locations the opportunity to join in the creation and collaboration regarding documents in real-time. Documents can be put into secure “folders” accessible by only members of a designated group. A board could have as many separate groups as it likes, with overlapping memberships. For each group, the communication software system can organize all relevant documents, all scheduled events, all relevant email, and list all assignments (completed and pending). One can view the status of all of these activities on a secure online workplace only accessible by those given special permission.

Group Mind Overview

One of the products currently used to promote effective board communication is “Group Mind. This software represents the state-of-the-art in communication software that can improve board communication and productivity. Group Mind creates a secure online workplace dedicated to the operations of a given board of directors. Each committee, task force, or group can invite its own members to view real-time information and interact with other members efficiently.

Case Study

Companies and nonprofits that rely heavily on their board of directors can use information technology to maximize participation by the board. Modern collaborative information technology provides a transparent model for accountability, and ensures initiatives are executed on time. Companies and nonprofits have found that using modern information technology it needs fewer scheduled meetings by board members since there are ongoing discussions and voting takes place on a regular basis online. Members can access all relevant information created by others and can author new information and share it with other board members, on their own schedule. One board member at such a company said, “we find our conference calls and in-person meetings are much more productive now as many issues are carefully studied and analyzed prior to the meetings.” Recently, another board member was overseas when he needed a document for a last-minute conference call. He used the software when he went to an internet café, pulled up the latest version of the document, and joined the call just minutes after having carefully analyzed the document.

Modern information technology software is useful for:

  • online voting
  • providing a shared document storage area where documents can be accessed from anywhere at anytime
  • development and viewing of shared calendars to check and schedule events
  • accessing contact information
  • use as a project management tool to track and manage ongoing projects, tasks, deadlines, and to easily Identify the responsible members for each task.

Ultimately, these new communication software systems will help boards’ effectiveness by increasing effective participation, accountability, transparency, and improving the ability of the boards of directors to be more effective in the governance and direction of an organization.

Too Much and Too Little Information

As you think about your board(s) of directors, the first question to ask yourself is:

“What is the communication and collaboration system for our board of directors?”

Most boards communicate, but do not have an organized system that directs its communication. It is like having a community with lots of cars, but with no road system, no traffic lights, speed limits or rules of the road.

This causes three things to happen in the board setting. Board members get so much information, they cannot differentiate between what is important information and what is not. Emails with the little “urgent” or “top priority” icons don’t cut it anymore. Even spammers use them. Second, board members do not get all of the information they need in a timely manner. Third, board members become overwhelmed with huge volumes of information and often have too little time to sort out what they really need to know to make informed, intelligent decisions.

Software based communication and collaboration systems with shared document capabilities can also prioritize documents. Most importantly, they can be accessed from any computer with internet access and do not need to be lugged around by the board member from city to city, from home to work and from airport to airport.

In the near future, some communication software systems will be able to create executive summaries of documents automatically. Even now, this software can collect and tally votes of board members who can vote at any time on any issue presented to them.

Efficiency

Small and medium sized businesses and nonprofits are now beginning to assign a staff member to the board of directors to assist board members in collecting needed information, and supporting board members in carrying out their duties. This is expensive. Today, new communication software packages can tremendously reduce the need for substantial staff support to aid the board as a whole and individual members in fulfilling their duties. We admit, that when an organization installs new communication software, boards of directors will still need some staff support to do be able to do their jobs well.

However, with the new scheduling systems, email systems, board book replacement systems, e-voting, opinion polling systems, and other features, more can be done today by boards than ever before, with less staff support than was needed just two years ago. For small and medium sized organizations, the savings from reallocating staff time from Boards of Directors to activities with greater ROI, can be very significant.

The Future

The communications software systems identified in this article have been in place for almost two full years, but are just being noticed in the marketplace. The current versions have many bells and whistles they did not have just a year ago. In the near future, the following additional features will become available as part of the basic software:

  • On line Meetings and Web Conferencing with real time virtual participation
  • Online management tools including sophisticated project management and operational planning software embedded into the virtual office software
  • Time and expense capture capability
  • Instant messaging and other alert systems that will be activated based on its tracking of databases to give the participants immediate notice of threats and opportunities
  • Indexing and summarizing of the repository of documents that the virtual office software system stores (extended library capabilities)
  • Full document and audit trail for all key decisions of the board
  • Task and commitment assignment and tracking systems
  • Expanded discussion spaces with a virtual moderator to synthesize and create consensus as a discussion emerges
  • Creation of “Expert Discussion Rooms” to pursue topics of interest using key experts

Conclusion

The time has come for boards of directors to demand from their organizations new communications software technology to help them carry out their missions. Increased board liability and continued unsatisfactory board performance is directly related to the quality of the communication and information the board receives in a timely manner. These new communications software systems, including Group Mind and others, are relatively inexpensive compared to the financial cost of potential failures by boards of directors.

Becoming a “2010 Board” requires ramping up to meet the demands of the highest standards for a board of directors.   Becoming a “2010 Board” also requires a 2010 communication and collaboration system so board members can function as a team and can learn what they need to know to fulfill their mission – the control, governance and direction of the organization. Shareholders, members, and stakeholders will demand nothing less. Judges and juries will punish those boards and board members that continue to use 2005 communications’ patterns when they are supposed to be “2010 Boards.” Not only do independent directors need this, all board members need this type of software to do their jobs. Today, it is just as inconceivable for an air traffic controller to do his/her job without software, as it is for a “2010 board” to try to do its job without up to date communication and “virtual office” software.

About the Author

Herb Rubenstein is President of the Sustainable Business Group, a business consulting firm. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999), co-author of Leadership Development for Educators (Rowman and Littlefield, 2009) and author of Leadership for Lawyers (American Bar Association, 2008). He has been an Adjunct Professor of Strategic Planning at George Washington University, and has been an Adjunct Professor of Entrepreneurism at George Mason University and Colorado State University.

He has written extensively on boards of advisors and boards of directors, business and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at (303) 910.7961. The website for the company is www.sbizgroup.com.

Herb Rubenstein is also the author of a course by Bisk Education, www.bisk.com, on boards of directors, which is eligible for continuing professional credits for accountants.

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A NEW PARADIGM FOR SUCCESSFUL BOARDS OF DIRECTORS

Article by Herb Rubenstein, President, Sustainable Business Group

Introduction

New companies and small non-profits think the last thing they need is a strong board of directors. And they think that they could not recruit a good board or pay for it. New companies and small boards are wrong if they think this.

First, new companies and small non-orfits desperately need a strong and active board of directors, even if the founder is not confident enough to show this strong board just how tenuous the company is at the outset. This board is critical for raising money, providing sage strategy advice for the new company and for helping to define markets and find companies.

Second, our experience in assisting in the creation and support for boards of new and existing organizations shows that people of great experience, dedication and talent are willing to sit on a boards of directors, even for start ups and relatively new organizations. Third, the people who join boards of directors, except for highly capitalized companies, generally expect no compensation for the first year, except expenses.

Therefore, a company or non-profit can budget as little as $5,000 for the first year operations of their board of directors and can reap the benefit of tens of thousands of dollars of advice from this new board. In addition, the new board can be instrumental in helping build the organizational capacity of the new business or small non-profit far beyond what could be accomplished without a strong board of directors. The ROI of such a board of directors can be very high indeed. They take time, but they are worth it.

Calculating the Value of A Board

Just based on a simple ROI projection, a board of directors could be the best investment a new company can make. New companies or non-profit organizations that do not have a strong, active board of directors right from the beginning is clearly missing a golden opportunity to jump start their company or non-profit organization.

So now the question is, how does a founder pick such a board of directors? The answer is easy and is explained at length in my book, Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999). Below I present a straightforward set of recommendations to follow in starting your board quest and keeping it running smoothly during the initial stages of your organization.

Selecting the Right Board for Your Organization

A board must be selected based on a careful analysis of what the for-profit company or nonprofit organization requires in human capital (capabilities, expertise, personality, attitude, experience, etc.) in order to achieve its long term mission. The role of the Board of Directors must be defined in writing. Without a doubt, the fundamental role of the Board of Directors is to make the enterprise ethically and financially sound.

Creating A Structure for the Board

The structure for the Board is equally simple. First, bring together key management, customers, stakeholders, employees and others interested in the success of the business or nonprofit organization and make a list of “target areas” where your company or organization could benefit from real expertise and advice. Several areas might include:

  • Public Relations, Communications, Publications, Branding and Reputation Building
  • Financial Review and Oversight
  • Administration and Management
  • Marketing and Sales
  • Technology, Research and Product/Service Development
  • Strategic Alliances
  • Intellectual Property
  • Customer Relationship Management
  • Legal Needs
  • Raising Capital
  • Personnel Recruitment (Board and Staff)
  • Ethics

These dozen “target areas” plus the target areas your research identifies will let you know who to look for to be on your board. In each area you might want to create a directorship for that specific area. Then go out, find and recruit the best in those fields you can reach. If they say no, put them on your list to come back to when you get bigger and keep looking until you have assembled a great team.

Then hold an “informational” meeting and invite potential board members to find out the role, scope, duties and activities you expect of such a Board. After the meeting follow up with each potential board member to see if they are a good fit for your board and if you decide yes, invite them to be on the board and execute all legal documents necessary to have them become an official board member. A month later then hold an actual board meeting for those who have accepted your invitation to be on the board. Then hold board meetings either monthly or quarterly thereafter with conference call meetings held in between face to face meetings.

The Morning After the First Board Meeting

On the day after each board meeting rather than just writing “minutes,” write a list of everything that you, the founder, and each member of the board and each member of the organization has promised to do as a result of the board meeting. See which ones can be accomplished before the next board meeting. Circulate this memo to everyone and manage the Board and the staff from this document. It is imperative to hold everyone accountable for doing what they said they were going to do and producing what they said they were going to produce at every board meeting.

Conclusion

Creating a strong board need not be a daunting task. People like to serve and contribute at the birth of organizations. And new organizations need a strong board to realize their long run potential.

About the Author

Herb Rubenstein is President of the Herb Rubenstein Consulting, a business consulting firm. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999), co-author of Leadership Development for Educators (Rowman and Littlefield, 2009) and author of Leadership for Lawyers (American Bar Association, 2008). He has been an Adjunct Professor of Strategic Planning at George Washington University, and has been an Adjunct Professor of Entrepreneurism at George Mason University and Colorado State University.

He has written extensively on boards of advisors and boards of directors, business and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at (303) 910.7961. The website for the company is www.herbrubenstein.com.

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THE ROLE OF TRAINING FOR BOARDS OF DIRECTORS

Article by Herb Rubenstein, President, Sustainable Business Group, and

Paul E. O’Flynn, Executive Director, Kentucky Organ Donor Association

Introduction

Today, new Board Members in for-profit businesses and nonprofit organizations often receive little or no training regarding how to serve as a successful Member of the Board of Directors. In the days when the Chairman/CEO wanted to keep a Board in the dark, keep them ineffective and Board meetings were just old boys clubs’ reunions at the shareholders or donors’ expense, this made sense. Today, in the new environment where Boards must be proactive, investigative, accountable and actually govern a company or nonprofit organization, no serious company or nonprofit oganization can omit Board training.

There are two types of Board training available in the marketplace. One form is generic, where someone takes an executive education course to “learn” how to be a good Board Member. Topics like fiduciary duty, the role of the audit committee, and other important and up to date topics of general interest are explained to Board Members. While these seminar types of educational programs are useful, they are not sufficient.

This article describes a thorough Board training program that each company or nonprofit organization can tailor to its own Board of Directors. We expect in the future as litigation heats up against Boards of Directors, the first area where the lawyers will try to hit home runs is to accuse a Board of Directors of not being properly trained for their role. Today, most Boards of Directors are sitting ducks and defenseless against this expected charge.

The Context for Training

The largest training organizations in the world, the military services of the United States, create specific training programs for specific environments and engagements. These training programs devote extensive resources to simulating the expected duties and challenges the military will face. They train solders and support networks to achieve specific, articulated goals. They regularly assess the quality of their training and improve the training programs based on the feedback they receive.

The same rigor must be put in place for training for Board Members. Therefore, in order to design useful training for a Board, your company or organization must have a clear understanding of exactly what roles the organization wants to Board to fulfill. Through knowing these roles, the organization can amass the resources it needs to train its Board. Without a clear picture of the role of the Board, the training will be hit and miss at best. And, since Board Members are generally very busy people, there is no time to waste in the one day of training that an organization is likely to devote to training the Board on an annual basis.

To solidify exactly the expected role of Board of Directors, each a Board should create a “charter” that outlines the role for the Board. In addition, it is good practice that each Committee of the Board also have a charter explaining its duties and responsibilities. Once an agreement is in place “defining” the roles of the Board and its Committees, then the Board (or senior staff of the organization with or without outside consultants) can design specific training for the Board that lasts at least one full day on an annual basis.

This article lays out some of the basic elements of such a training program. It identifies what should take place prior to the one day Board of Directors training program in order to prepare the Board, what happens on the day of the training and then what should occur on an ongoing basis for Board training throughout the year.

Key Steps in Training Your Board of Directors

The first step in any training program is to define all of the objectives of the training program. Therefore, we start with the question: “What is the first objective of a Board training program?” The answer is obvious, but often overlooked.

The first objective of a Board training program is to make sure that the Board is educated and trained in “KNOWING THE COMPANY OR OGANIZATION.” While this may seem obvious, actually many Board Members do not understand the following items about the company or nonprofit organization where he or she serves as a Board Member:

  • fundamentals of the company or nonprofit organization’s business or financial model
  • values of the organization, in rank order
  • unique (or desired unique) position in the competitive marketplace
  • competitors
  • unique value proposition
  • cost structure
  • profit zone
  • key strategic alliances
  • channels for distribution of its products and services
  • membership or customership base
  • marketing plan
  • fundamentals of its human capital strategies
  • value or how to exploit its intellectual property asset base
  • basic elements of the strategic plan or long range plan for the company or organization
  • learning the proper road to advancement to chairmanship of committees and gathering additional responsibility on the board

In addition, many Board Members do not understand:

  • the basic financials of the company or nonprofit where they sit of the Board
  • know how to read and analyze financial statements
  • know the full import of a “reportable condition” (under the standards established by the American Institute of Certified Public Accountants) as specified in the organization’ Independent Auditor’s Report
  • know exactly the lead revenue sources and their drivers for the organization
  • know the intellectual property base of the organization and its value
  • know the human capital base of the organization and its relative strengths and weaknesses
  • understand the manufacturing procedures used by the organization
  • know the loss leaders and growth inhibitors that prevent the company or nonprofit organization from growing.

Therefore, the first part of any training program for Board Members must be to create the background materials and a workshop (either in person or virtual) to explain each of these items, plus explain the business model and organizational framework of the organization. Each Board Member needs to know the evolution of the organization, needs to have access to all previous business plans and strategic plans and needs access to the following information to become fully informed about the organization:

  1. Current and all previous copies of business plans of the company or non-profit.
  2. Outline of the latest research on the competitive landscape for the industry/sector involved.
  3. Summary of the recent investments or large scale donations made in this industry by venture or seed stage investors or donors. With regard to a company seeking investors, it would be useful to provide an explanation of the valuations used to form the term sheets of the other investments.
  4. History of all prior investments and donations in the organization.
  5. Current operating budget (annual) for the company or non-profit for the past year and all previous annual reports. Complete financial history of the company or non-profit, including annual financial statements, auditors independent reports, 990’s, tax returns and standard financial reporting documents over the past three years.
  6. Resumes of all key personnel at the board level and senior staff level, including those expected to come on board over the next year.
  7. All graphics, logos, key words and phrases used to describe the company or non-profit.
  8. A graphic presentation of the business model employed by the company or non-profit.
  9. A graphic that compares the company’s or non-profit’s current or proposed products against all competitors
  10. Time line documents showing all milestones that the company or nonprofit organization expects to achieve in the next twelve months to achieve key goals.
  11. A memo on all key risk factors dealing with the company or non-profit and the marketplace.
  12. A memo on the company’s or non-profit’s risk management strategy and all legal protections for the company’s or non-profit’s branding, logos, technology and intellectual property.
  13. All previously used marketing materials of the company or non-profit.
  14. A copy of all company commissioned research, white papers and books prepared by the company or non-profit.
  15. A copy of all acknowledgements, press releases, press coverage and articles about the company or non-profit and its principals.
  16. Copy of all private placement memoranda used by the company in the past to raise money, including current PPM. In the case of the non-profit all previous donation solicitation materials.
  17. List of all accrediting organizations.
  18. Firm or organization resumes of all outsourced partners (legal, accounting, etc.).
  19. A thorough list of frequently asked or anticipated questions with detailed answers to each.
  20. List of all investigative reports by all government and accrediting bodies.

The most efficient way to disseminate this information is to create a web based shared documents section that is password protected on the organization’s website or virtual private network. Each Board Member must know the business, mission and all key facts about the organization in order to govern the organization effectively. Each Board Member must be given access to staff and other Board Members who can answer questions. A listserve system can be developed so that all questions and answers can be emailed to all Board Members and posted on the password protected section for all Board Members to view.

Second, each Board Member must, before the “day of Board training” starts, KNOW EACH OTHER BOARD MEMBER. This requires an active effort to collect and share resumes, bios, and other key information about each Board Member with each other Board Member. Board Members must be encouraged to pick up the phone or go in person to visit other Board Members to get to know them.

Third, each Board Member must know why he or she was selected for the Board and the role each is expected to play in the organization.   In baseball, every player knows his or her position long before spring training starts. Similarly, Board Members must be individually oriented regarding how his or her specific and/or generalist type of expertise is expected to help forward the organization through their service on the Board of Directors. And, after this is sorted out for each Board Member individually, this information needs to be communicated about each Board Member to every other Board Member, so that everyone will know the strengths that each Member brings to the Board of Directors.

Fourth, before the “day of training,” each Board Member must be given three reports prepared by senior staff and the Board on:

  • CURRENT CHALLENGES OF THE ORGANIZATION
  • REPORT ON THE FUTURE OF THE ORGANIZATION
  • HOW THE ORGANIZATION DEFINES SUCCESS.

Since the Board’s job is to help contribute to the future of the organization and to be held accountable or all current shortcomings of the organization that an active Board could correct, these reports are critical to teaching a Board Member what he or she needs to know to be successful.

Fifth, Board Members must be educated and trained on the basic procedures and operations of the Board, including parliamentary procedures.

Generally, the material called for above should be presented to Board Members in a BOARD MANUAL. All of this information, once approved or in discussion drafts, could be placed on the web for the Board or sent in a Board manual in paper. Today, many Boards do not have a Board manual. This is another invitation to litigation disaster (and productivity disaster) as lawyers will ask each Board Member how he or she knew the full scope of his or her job as a Board Member. Without such a manual or map, a Board Member will be in a hopeless position to explain how he or she knew how to operate as a Board Member. In football, it would be like not having a playbook or in the movies, it would be like trying to shoot a film without a script or even an agreed upon plot.

A typical Board Manual in addition to the items listed above should have access to the following items:

  1. Articles of Incorporation
  2. Bylaws
  3. Guidelines for Evaluating the Board
  4. Guidelines for Evaluating the CEO
  5. Code of Ethics
  6. Organization Chart of Board
  7. Organization Chart of Senior Staff
  8. Description of the Roles of the Board
  9. Board Charter
  10. Charters for All Committees of the Board
  11. Board Calendar for Next 12 Months
  12. Prior Year’s Board Meeting Agendas and Minutes
  13. Auditors Letter for Prior Year
  14. Description of Key Strategic Alliances
  15. Basic HR Policies
  16. Copies of Directors and Officers Insurance Policy

Another step in the Board training process well before the “day of training” is to assign each Board Member another, more senior, Board Member to serve as the junior Board Member’s “mentor.”  In addition, it is important to assign each Board Member a “staff liaison” that the Board Member can access via phone, email, letters, fax, etc. for questions, advice, information and other support that the Board Member needs. One staff member could possibly serve in the staff liaison role for all Board Members, depending on the size and complexity of the organization and its Board. Even for Boards where all Members are long standing, creation of this mentoring and staff liaison system is essential for Board Members to work efficiently and effectively.

The next step in this process, and the last step before the full day of training, is to confirm that before the official day of training, all Board Members have fully completed the education called for above, and are taking full advantage of the mentoring and staff liaison services available. Also, one might want to provide for “cross introductions” where one member is assigned to introduce another board member at the actual training event. This would require a board member to meet with the person who will introduce them for one-half hour before the training day.

Then, after completion of these initial steps, the Board of Directors of the organization is ready for its annual “day of training.”

The One Day Board Training Program

First, it is assumed that the date for this training program is set at least four months before the actual date to insure that every Board Member can attend. Second, it is important to schedule this training day many months ahead of time to give the organization time to complete the five step process of getting Board Members ready for this day of training outlined above. Attendance should be mandatory and this training should take place each year. It could be set the day before a scheduled Board meeting.

Third, a company or nonprofit organization can use either an outside consultant, a Board Member or a senior management official of the organization to conduct and lead the training.

Fourth, it is assumed that by the day of the training, the issues of Board and Committee roles, the roles of the individuals on the Board, a thorough understanding of the current challenges of the organization and projected future of the organization have been presented to and analyzed thoroughly by each Board Member. These will not be topics discussed in great detail on the day of training. At training camp in football, the purpose of football is not discussed.

The day of training is geared around how to execute the Board and Committee Roles as they have been developed. It is not a day to hold fights over the role of the Board or how individuals fit it. It is not a day for exploration or contemplation of some future role for the Board. It is a day where all Board Members come to the training knowing the organization in depth, knowing the agreed upon role of the Board and its Committees, know their individual roles and are ready to delve into the “HOW TO’s” necessary for the Board of Directors to help lead the organization forward to success.

The morning session is for Board Members only. The afternoon session can be attended by senior management of the organization. A typical framework for the morning and afternoon sessions would look like the following:

7:30 – 8:15 Tour the Facility

8:30 – 9:00 Explanation of the Day and Invitation to Board Members to Add Discussion Items for 2:30 – 3:30 slot

9:00 – 10:00 Current State of and Evolution of the Law Pertaining to Boards of Directors

10:00 – 11:00 Current Best Practices of Boards of Directors Relevant to this Board

11:00 – 11:15 Break

11:15 – 12:30 Board Committee Duties, Reporting Systems, Rules for Bringing New Items to Board’s Attention, Role of Technology in Supporting Board, Calling Special Meetings, Promoting Board Member Initiatives, Role of Staff Support and Board Budget

12:30 – 1:30 Lunch – Discussion of the Role of Philanthropy in the Organization, the Role of Board Member donations and contributions to the organization

1:30 – 2:30 Description of The Work Of the Board Between the Meetings: Explanations of the Expectations for Board Operations, Productivity, Output, Success and Limitations; The Role of the Staff of the Organization in Assisting the Board

2:30 – 3:30 Open Discussion by Board Members and Senior Staff on New Topics Suggested at the Beginning of the Day

3:30 – 3:45 Break

3:45 – 4:45 New Ventures/Directions and the Future of the Company

4:45 – 5:45 Explanation of The Board as a Self-Improving Mechanism, Procedures for Evaluating The Board of Directors

5:45 – 6:30 Wrap Up; Action Items Discussed

Conclusion

This process is time consuming and requires a substantial investment by the company or nonprofit organization even if internal personnel are going to do every step in the process. The days when organizations could get away with not training their Boards of Directors are gone.

This board training effort needs to become part of the general activities of the Board. Whenever a new Board Member is brought on, for that Board Member, the training must start at the beginning of his or her service to the organization in a form that at least brings that Board Member up to speed sufficiently to be a productive Member of the Board. Each year the “day of training” should be informed by and improved by Board input throughout the year. It would be wise for Boards to form a Board Training Committee, especially if an outside consultant is not brought in to facilitate the process.

Today, there are few published standards for training Board Members. This article attempts to help fill this gap in the literature on boards.

While this article in not written to form a comprehensive set of standards or Board training procedures, it does show the rigor that Board training demands today in order to meet the challenges that Boards face today. While each Board will need to tailor its pre-training educational program, its mentoring program, its staff liaison system and its agenda for the one day Board training session, this format suggests an approach that would, if implemented, represent a great leap forward for 95% of the Boards of Directors in operation today.

About the Authors

Herb Rubenstein is the President of Herb Rubenstein Consulting. He is the Co-Founder and Executive Director of THE LEEEGH, a nonprofit organization which stands for leadership in education, energy, environment, governance and health. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999), co-author of Leadership Development for Educators (Rowman and Littlefield, 2009) and author of Leadership for Lawyers (American Bar Association, 2008). He has been an Adjunct Professor of Strategic Planning at George Washington University, and has been an Adjunct Professor of Entrepreneurism at George Mason University and Colorado State University.

He has written extensively on boards of advisors and boards of directors, business and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at (303) 910.7961. The website for the company is www.sbizgroup.com.

Herb Rubenstein is also the author of a course by Thomson Reuters on boards of directors, which is eligible for continuing professional credits for accountants.

Paul E. O’Flynn, FACHE, is Executive Director of Kentucky Organ Donor Affiliates. He has served as Senior Administrator of the University of Chicago Hospitals, the Health Care Unit Administrator of the Joliet Correctional Center, the Administrator of the Department of Medicine at Cook County Hospital, and is a Fellow of the American College of Health Care Executives. He has a MPA from Roosevelt University in Chicago and both a BA and BS from Ohio State. He has recently been elected to the Board of Directors of LifeNet, Inc. in Virginia Beach, Virginia. He can be reached at (502) 581-9511 and his email address is poflynn@kyorgandonor.org.

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BOARD OF DIRECTORS SCORECARD

Article by Herb Rubenstein

Introduction

Today there is a great need for effective Boards of Directors. There are many evaluation and assessment systems on the web and available from consulting firms. However, few evaluation systems analyze all of the proper clusters of factors that we know from the literature affect board performance. The list below organizes each of the key factors and forms the basis for the next generation of measures to allow us to assess and improve the operations and effectiveness of Boards of Directors.

In addition to these clusters, one needs to know what stage of development each Board is currently operating since a new Board at a start up can not be compared to the 100 year old Board of a publicly traded company. Using a “maturity model” is an essential ingredient to proper evaluation of Boards of Directors and Boards of Advisors. The clusters are listed below. Every Board should pay careful attention to each of the clusters

Cluster 1 – Human Capital Factors

  1. Does organization know what competencies are needed for Board members
  2. Does board currently have right people with right competencies
  3. Does organization have system for identifying when new competencies are needed
  4. Does organization have ability to add/subtract board members based on fit, competencies and performance
  5. Does the board have a nominating committee that takes competencies into account
  6. Does the board have a resume file or waiting list for board positions
  7. Is the board willing to increase the size of the board to accommodate the need for new competencies.

Cluster 2 – Organizational/Leadership Factors

  1. Are board rules in place and enforced
  2. Is board structure appropriate
  3. Does board have evaluation system for board as a whole plus individual members
  4. Does board have someone responsible for ethics oversight
  5. Do board members have written agreements with the organization that identifies their roles and responsibilities
  6. Are the CEO and Chairman different people
  7. Are board member expectations consistently realized
  8. Are all past board records accessible and well organized

Cluster 3 – Process Factors

  1. Does the board meet as often as appropriate (at least quarterly)
  2. Is a board book prepared and distributed at least 10 days in advance of a board meeting
  3. Do board members meet regularly without management
  4. Is board attendance 80% or higher at every meeting
  5. Does the board have a system for collecting information on best practices of other boards
  6. Does the board have a system for recommending best practices to the organization and following up to see if they are implemented

Cluster 4 – Resource Factors

  1. Is there a person who is the director of board relations
  2. Is there an adequate budget for the board
  3. Do board members actively participate in bringing new resources to the organization, (i.e. money, strategic alliances, professional services, customers, etc.)
  4. Does the board assist on a regular basis in developing a strategy for the organization
  5. Is the board compensated in any way for being on the board
  6. Is there D&O Insurance for the board

Cluster 5 – Accountability/Financial Oversight Factors

  1. Are board minutes, votes and action items identified all in order
  2. Is there a procedure where a board member can question the actions of the organization
  3. Is the board meeting run by the Board Chair
  4. Are there sufficient outside directors
  5. Is the board exercising informed reviews and making key financial decisions for the organization
  6. Do board members sit on too many other boards, have other conflicts of interest or are family members of other board members
  7. Is the board exercising informed reviews and making key financial decisions for the organization

Cluster 6 – Transformational/Communication Factors

  1. Does the board have a clear statement of its deficiencies
  2. Does the board have a board improvement plan that is being carried out
  3. Does the board have a leader with a clear vision for the future of the board
  4. Does the board have a clear vision of the future of the organization? the industry or sector?

Cluster 7 – Governance Factors

  1. Does the board govern the organization or just provide advice
  2. Are their five examples where the Board voted in key areas to the company
  3. The board has a 3-5 outlook or plan to direct the organization
  4. Violations of board rules or board set policies are dealt with quickly, publicly and consistently
  5. Are there term limits for board members

Cluster 8 – Reputation Factors

  1. How well known is the organization and its board
  2. How well respected is the organization and its board
  3. How many articles, speeches and books have board members written or given as a board member
  4. Does the organization have a plan for promoting the board’s reputation and the organization’s reputation

Cluster 9 – Performance/Results Factors

  1. Can the board show it has contributed 10% to the top line/bottom line in the organization in the past year
  2. Has the board corrected or improved at least 3 major problems in the organization in the past year
  3. Does the board know and have a plan to correct or improve 3 major problems the organization will face in the next year.
  4. Can each board member identify a significant contribution he/she has made to the organization within the last 60 days
  5. Can each board member identify a significant contribution that he or she will make to the organization in the next 60 days
  6. Can each board member identify a significant contribution that each other board member has made to the organization in the last 60 days
  7. Has the board made 5 key financial decisions in the past 90 days

Cluster 10 – Alignment Factors

  1. Does the board have general agreement regarding its major roles and responsibilities
  2. Does the board agree on the major problems of the organization
  3. Does the board agree on the major opportunities of the organization
  4. Does the board agree on the key values of the organization

Conclusion

The process of getting a board of directors board into top operational shape has never been more important. Having a non-producing board of directors or not having a board of directors at all is no longer acceptable in the business and non-profit communities.

About the Author

Herb Rubenstein is the President of Herb Rubenstein Consulting, a consulting firm to businesses and government. He is the author of the Thomson Reuters course 21st Century Standards and Practices for Boards of Directors. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999). He also teaches Strategic Management at the Graduate School of Business of the University of Colorado Denver’s Global Energy Management Program. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at 303 910-7961. For more information about the company, see www.herbrubenstein.com.

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CHALLENGES AND POTENTIAL OF BOARDS OF ADVISORS AND BOARDS OF DIRECTORS FOR ALL COMPANIES

Article by Herb Rubenstein

Introduction

Boards of Advisors and Boards of Directors for all companies, nonprofits, and educational organizations can provide great value for the organization in their earliest years and whenever the organization wants to grow and improve their success. Many leaders of organizations would say they don’t have a board of directors or board of advisors composed of “outside members” (people who are not employed by the firm), because their organizations are too small, they don’t have the time or money to create one, or don’t think anyone would be interested in serving on such a board.

These statements are simply false. In America, and likely in most countries around the world, if a company, nonprofit or educational institution is producing good products or services, or wants to produce good products or services, there will be people who will want to help them succeed, and will volunteer to help them succeed.   And, when we look at the people who are leading organizations, and what they do on a daily basis, we can see that these people truly need the help of a volunteer board of director or board of advisors because these organizational leaders spend an extraordinary number of hours working IN the business or organiation, but often spend little time working ON the business or organization.

Frankly, many organizational leaders often have few of the skills, experience, contacts, business and organizational planning and finance capabilities, human resource knowledge, contract, negotiation, and sales training necessary to make their organizations financial successes. Boards of advisors can supplement the skills, knowledge, and efforts of organizational leaders to help them be more successful.

This article takes a stab at some myths that currently serve as barriers to the formation of helpful boards of advisors or boards of directors. By reading this article you may be able to embark on an effort that can pay huge dividends in improving your business or nonprofit. Sure, by creating a board of advisors or board of directors you will be asking for advice from others, and that can get messy, but it need not cause any problems whatsoever. What is essential to know is that there are many people with real business and organizational expertise that will help you and your organization grow and reach its potential. Read on.

Just Who Leads Companies, Educational and Nonprofit Organizations?

Many organizations are started or run by one or two “visionaries” who are extraordinary people. These leaders are often:

  • Focused
  • Intense
  • Driven
  • Problem Solving Oriented
  • Accurate and Precise
  • Organized
  • Able to Work in Isolation
  • Confident
  • Self-Centered, Control Oriented
  • Research/Fact/Analytically Insightful
  • Detail, Precision, Measure Oriented
  • Impatient, Always On to the Next Thing

Not all of these characteristics fit everyone who leads organizations. However, it is clear from this list that to make a company or organization very successful, the organization needs more skills and knowledge than the leaders often possess. That is where a board of advisors or board of directors can pay huge dividends for organizations of all types.

Killing Myths: A Road to Progress

This article will attempt to destroy the three myths that often stop or hinder companies, nonprofits, or educational organizations from starting and having useful boards of directors and boards of advisors. These myths are:

  1. Organizational leaders would not be great conveners or managers of boards of advisors or boards of directors for their organizations.
  2. Such a board would not provide much value to the organization.
  3. These types of boards require a lot of time, effort and expense to set up and to support on an ongoing basis.

Debunking Myth Number 1

It does not take a human resource specialist to set up a board of advisors. In fact, it takes only a couple of hours, and the steps are very simple. They are:

  1. Identify skills and expertise that your organization needs that it cannot readily buy.  Create a list of these skills and expertise and begin looking for people with them to ask to serve on your organization’s board of advisors or board of directors.
  2. Create a one-page set of “Expectations of Members of the Board of Advisors.” This one pager would include how many meetings (from one to six meetings a year, possibly 12, but that is pushing it), what the agendas for the meetings will include, and a paragraph describing the compensation, if any, that will be paid to members of the board of advisors. Compensation for a member of a board of advisors could simply be some discount on the products or services of the organization, business referrals, public acknowledgement, etc.
  3. Set the number of advisory board members you would like (usually between five and fifteen) and create a list of potential advisory board members.
  4. Call them and invite them to consider attending an exploratory meeting, usually a dinner, to consider being on the advisory board.
  5. Set the date for the meeting, invite the participants, set the agenda for the meeting, hold the meeting, and that’s it.

These five steps could take as little as one to two hours. So, myth number one that you might not be very good at setting up a board of advisors that can produce real value for your organization, has been debunked.

Debunking Myth Number 2

The second myth is that boards of advisors and boards of directors are a waste of time for most organizations.

To disprove this a myth, below I provide a list of just some of the actual benefits that boards of advisors and/or boards of directors can provide to organizations.

  1. Identify and help secure new customers – particularly those with a strategic interest in the success of the organization
  2. Identify and help recruit new, highly qualified employees
  3. Identify and help secure new sources of financing and capital
  4. Provide independent advice regarding the organization’s business plan, products, services, prices, customer service, etc.
  5. Provide public relations support
  6. Help with human resource issues – help the CEO with serious personnel issues
  7. Help finding space to rent or buy
  8. Assistance in putting into place a supply chain with agreeable cost and terms of delivery and payment
  9. Assistance in finding legal counsel, accountants, payroll services and back office support
  10. Assistance with competitive intelligence
  11. Assistance with mentoring a CEO and senior staff
  12. Provide valuable contacts in the business community
  13. Valuable contacts in the general communities in which they operate
  14. Valuable contacts in the university and educational sector or other areas of expertise useful to the organization
  15. Help generate invitations for speaking opportunities for organizational leaders
  16. Co-authorship of articles
  17. Advice on accounting issues
  18. Recommendations regarding the organization’s marketing plan
  19. Provides loans of equipment, office space or conference room space
  20. Provide advice on how to improve customer service or the product or service that the organization will offer in the future
  21. Assist in getting real feedback and constructive criticism from customers and other forms of customer relations management support
  22. Recommendations on strategic partners
  23. Recommendations on conferences and events to attend
  24. Recommendations on organizations to join
  25. Recommendations on how to structure contracts with employees
  26. Recommendations on how to share equity with employees or acknowledge employees
  27. Recommendations on how to secure donations or investors in the organization
  28. Provide leadership development training for the CEO and senior staff of the organization
  29. Help set realistic, stretch goals for the organization
  30. Advise company on potential merger and acquisition opportunities or strategic alliance opportunities
  31. Assist in improving the reputation of the organization in the community
  32. Advise the company on a volunteer or contribution strategy that can pay dividends for the organization
  33. Advise the company on human resource retention policies, pay scale and help negotiate terms with specific employees
  34. Suggest new business models for the organization
  35. Provide consulting and bench strength to the company when it is stretched thin but can not hire additional full time personnel.

This list of 35 benefits that a board of advisors or board of directors can provide is illustrative of what an organization should ask of its board of advisors. This list shows there is a great potential return on investment in creating a board of advisors or more formal, board of directors

Debunking Myth Number 3

The third and final myth is that boards of advisors and/or boards of directors take a lot of time, effort and expense to set up and to support on an ongoing basis. Boards can be set up in just several hours of time. On going support, be it monthly, quarterly or bi-annual meetings will take some effort to coordinate. However, getting ready for a board of advisors’ meeting should not take long because organizational leaders should know how to report quickly to the board of advisors what is going on in the organization and should know what to ask for in terms of help from the board.

So, creating and supporting a board of advisors or board of directors need not take huge amounts of time. Meetings can be one to two hours.

Conclusion

Henry Ford once said, “Whether you say you can do something or not, you are right either way.” This is the case with boards of directors and boards of advisors. If you say it is too much hassle, too large of a cost, that no one can help your business, and no one would want to anyway, you are probably right. And if you say that our business could benefit from others looking at what we do, giving their advice, making suggestions, and I know exactly the 5-9 people who would make great members of a board of advisors or board of directors, and they would love to join such a board and would get a lot out of it, you are also probably right.

I hope by reading this article you will explore whether a board or advisors or more formal board of directors could help your organization be more successful.

About the Author

Herb Rubenstein is a Lecturer in the Graduate School of Business of the University of Colorado Denver. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999), co-author of Leadership Development for Educators (Rowman and Littlefield, 2009) and author of Leadership for Lawyers (American Bar Association, 2008). He has been an Adjunct Professor of Strategic Planning at George Washington University, and has been an Adjunct Professor of Entrepreneurism at George Mason University and Colorado State University. He has written extensively on boards of advisors and boards of directors, business and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at (303) 910.7961. The website for the company is www.herbrubenstein.com. In addition, he trains people and organizations in leadership development and you can learn more about his work at www.leadershipforeducators.org and www.leadershipforattorneys.org.

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EVALUATING BOARDS OF DIRECTORS

By Herb Rubenstein, President, Herb Rubenstein Consulting

Introduction

It is often said that we learn from failure and mistakes. However, the question remains, “What do we learn?” If all we learn is not to make that mistake again, that is not a really powerful “learning.” The way we ultimately learn from mistakes and failures is that we set new standards as a result of analyzing mistakes and failures. Boards of Directors today obviously need new standards.

Current Failures – New Standards

The failures of Enron and Anderson Consulting, and the mistakes of United Way, MicroStrategy, The Washington Teachers Union, Ullico, Tyco, Chesapeake Energy, and other modern day business and non-profit tragedies have much to teach us. One lesson is clear. In each one of these situations, a big part of the problem was a failing of the Board of Directors. This article sets a new direction in the literature on Boards of Directors.

Rather than discuss board of directors’ philosophy (Carver, Boards that Make a Difference, 2nd Edition, Josey Bass, 1997), best practices (Robinson, Nonprofit Boards that Work, Wiley, 2001), board of directors selection processes (Rubenstein and Grundy, Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations, Prentice Hall/Financial Times, 1999) or individual characteristics of non-profit leaders (Nanus and Dobbs, Leaders Who Make a Difference: Essential Strategies for Meeting the NonProfit Challenge, Josey Bass, 1999), this article begins to delineate a new standard, consisting of twelve elements for Boards of Directors. There is much detailed work behind each of the twelve elements of the Board of Directors Standard plus a thorough evaluation framework for Boards of Directors that formalizes this standard. This article is designed to give Boards of Directors of businesses and non-profits a new, clear standard — a north star — to guide their creation and operation. The standards are:

Standard Number 1

Every business and non-profit organization shall have a duly elected Board of Directors with written role descriptions for each board position (member), for the board as a whole, and the board shall set and ensure compliance with all key standards, goals and values which define the organization’s identity.

Standard Number 2

The Board of Directors shall have an election/selection process that guarantees that every skill, competency and aspect of human capital that the organization requires to be successful is present at all times on the Board of Directors.

Standard Number 3

The Board of Directors shall on a regular basis (no less than annually) evaluate each of their members, the Board’s processes, operations and actual, measurable contributions to the organization and replace board members and change their processes and operations that are not contributing significantly to the success of the organization.

Standard Number 4

The Board of Directors shall be supported by organizational processes, including a board book distributed to the board of directors one week in advance of a board meeting. The board book will give board members timely, accurate information plus a clear and cogent analysis so that the board can make intelligent decisions free of undue influence.

Standard Number 5

The Board of Directors, each year, shall make at least ten decisions and take ten distinct actions that contribute significantly to improving the quality and ultimate success of the organization each year.

Standard Number 6

Each board member shall, each quarter, originate or sponsor at least one major action or idea that contributes significantly to improving the quality and ultimate success of the organization.

Standard Number 7

Every board member shall be allocated sufficient resources, including financial resources, access to research, independent advisors and industry/competitive intelligence, necessary to perform their job admirably.

Standard Number 8

Each board member shall take forceful action to discover, eliminate and permanently eliminate any lack of integrity, ethical violation or failure by the organization to follow the laws and highest ethical standards of the society (ies) in which the organization operates.

Standard Number 9

The Board of Directors shall guarantee that the historical and contemporary financial books and records of the organization are accurate, and kept in accordance with the highest accounting standards. Further, the Board of Directors shall guarantee that the financial projections of the organization are well informed and serve as a excellent roadmap for the future of the organization.

Standard Number 10

The Board of Directors shall be responsible for providing input into and approving an annually updated business plan and budget, monitoring financial and programmatic performance of the organization and providing input the long-range (3-5 year) strategic plan for the organization.

Standard Number 11

Each board member shall take at least one action monthly to enhance the reputation of the organization. The Board of Directors shall develop an annual plan to improve the reputation of the organization in the community and to insure that actions of the organization consistently enhance the reputation of the organization.

Standard Number 12

The Board of Directors shall be actively involved in bringing substantial resources to the organization and in creating, supporting and sustaining strategic alliances for the organization. Each board member shall take at least one action quarterly that brings in new or additional resources or creates a new strategic alliance for the organization.

From Standards to Clusters of Factors

These standards must be translated into measurable factors in order to evaluate a board’s performance. The ten clusters of factors represent aggregated scores which if measured accurately can shed great light on the past performance and the performance potential of a board of directors. The clusters include:

Cluster 1 – Human Capital Factors

  1. Does organization know what competencies are needed for Board members
  2. Does board currently have right people with right competencies
  3. Does organization have system for identifying when new competencies are needed
  4. Does organization have ability to add/subtract board members based on fit, competencies and performance
  5. Does the board have a nominating committee that takes competencies into account
  6. Does the board have a resume file or waiting list for board positions
  7. Is the board willing to increase the size of the board to accommodate the need for new competencies

Cluster 2 – Organizational/Leadership Factors

  1. Are board rules in place and enforced
  2. Is board structure appropriate
  3. Does board have evaluation system for board as a whole plus individual members
  4. Does board have someone responsible for ethics oversight
  5. Do board members have written agreements with the organization that identifies their roles and responsibilities
  6. Are the CEO and Chairman different people
  7. Are board member expectations consistently realized
  8. Are all past board records accessible and well organized

Cluster 3 – Process Factors

  1. Does the board meet as often as appropriate (at least quarterly)
  2. Is a board book prepared and distributed at least 10 days in advance of a board meeting
  3. Do board members meet regularly without management
  4. Is board attendance 80% or higher at every meeting
  5. Does the board have a system for collecting information on best practices of other boards
  6. Does the board have a system for recommending best practices to the organization and following up to see if they are implemented

Cluster 4 – Resource Factors

  1. Is there a person who is the director of board relations
  2. Is there an adequate budget for the board
  3. Do board members actively participate in bringing new resources to the organization, (i.e. money, strategic alliances, professional services, customers, etc.)

Cluster 5 – Accountability/Financial Oversight Factors

  1. Are board minutes, votes and action items identified all in order
  2. Is there a procedure where a board member can question the actions of the organization
  3. Is the board meeting run by the Board Chair
  4. Are there sufficient outside directors
  5. Is the board exercising informed reviews and making key financial decisions for the organization
  6. Do board members sit on too many other boards, have other conflicts of interest or are family members of other board members
  7. Is the board exercising informed reviews and making key financial decisions for the organization
  8. Does the board assist on a regular basis in developing a strategy for the organization
  9. Is the board compensated in any way for being on the board
  10. Is there D&O Insurance for the board

Cluster 6 – Transformational/Communication Factors

  1. Does the board have a clear statement of its deficiencies
  2. Does the board have a board improvement plan that is being carried out
  3. Does the board have a leader with a clear vision for the future of the board
  4. Does the board have a clear vision of the future of the organization? the industry or sector?

Cluster 7 – Governance Factors

  1. Does the board govern the organization or just provide advice
  2. Are their five examples where the Board voted in key areas to the company
  3. The board has a 3-5 outlook or plan to direct the organization
  4. Violations of board rules or board set policies are dealt with quickly, publicly and consistently
  5. Are there term limits for board members

Cluster 8 – Reputation Factors

  1. How well known is the organization and its board
  2. How well respected is the organization and its board
  3. How many articles, speeches and books have board members written or given as a board member
  4. Does the organization have a plan for promoting the board’s reputation and the organization’s reputation

Cluster 9 – Performance/Results Factors

  1. Can the board show it has contributed 10% to the top line/bottom line in the organization in the past year
  2. Has the board corrected or improved at least 3 major problems in the organization in the past year
  3. Does the board know and have a plan to correct or improve 3 major problems the organization will face in the next year.
  4. Can each board member identify a significant contribution he/she has made to the organization within the last 60 days
  5. Can each board member identify a significant contribution that he or she will make to the organization in the next 60 days
  6. Can each board member identify a significant contribution that each other board member has made to the organization in the last 60 days
  7. Has the board made 5 key financial decisions in the past 90 days

Cluster 10 – Alignment Factors

  1. Does the board have general agreement regarding its major roles and responsibilities
  2. Does the board agree on the major problems of the organization
  3. Does the board agree on the major opportunities of the organization
  4. Does the board agree on the key values of the organization

Disaggregating the Individual Factors

These clusters provide a strong indication of board performance. Mining the data on the individual factors listed below will give a board more in depth, valuable information. The factors below can be analyzed at both the board level and at the individual board member level. We recommend rating all of the factors in board evaluations using a 1-5 scale or “maturity model” where 1 is the most negative or “never” response and “5” is the most positive, “always” or “excellent” response. The individual factors worthy of measurement in evaluating boards of directors are:

  1. Recruitment and Experience
  2. Training and Use of Technology
  3. Terms of board members
  4. Use and Availability of Outside Expertise
  5. Board Recordkeeping
  6. Oversight
  7. CEO Supervision
  8. Financial Management
  9. Audit
  10. Fiduciary Responsibility
  11. CEO Accountability
  12. Bylaws
  13. Board Duties
  14. Voting
  15. Leadership and Capacity for Change
  16. Resources
  17. Board Results
  18. Member Past Results
  19. Member Future Results
  20. Organizational Results
  21. Board Processes
  22. Meeting Process
  23. Board Expectations
  24. Board Member PR
  25. Board Knowledge
  26. Compensation
  27. Communication
  28. Demographics
  29. Board Understanding of Opportunities
  30. Board Understanding of Problems
  31. Financial Value of the Board
  32. Board Understanding of Stakeholders
  33. Clarity and Alignment of Purpose
  34. Competencies and Independence of the Board from the CEO and Management

Conclusion

This article is designed to reframe the discussion regarding Boards of Directors to institute new national and international standards for Boards of Directors. These proposed standards apply, in our judgment, equally to boards of directors of large or small for-profit companies, non-profit organizations and applies equally to large boards and small boards.

These standards, as well as the individual and clusters of factors which evolve from these standards, form the basis for evaluating boards of directors. We welcome your comments and suggestions for refinements and improvements in these new standards and evaluation factors for Boards of Directors.

_____________________________________

Biographical Information

Herb Rubenstein is an attorney and the President of Herb Rubenstein Consulting. He is a lecturer in Strategic Management at the University of Colorado Denver’s Graduate School of Business where he teaches board governance standards and practices. He is the author of the Thomson Reuters’ course 21st Century Standards and Practices for Boards of Directors. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999). He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@sbizgroup.com and he can be reached at 347.916.1317 or 303.910.7961. He lives in New York City.

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THE NEW STANDARDS FOR BUSINESS PLANS

Article by Herb Rubenstein,
President, The LEEEGH

Introduction

Today, business plans are funded at the rate of 1 in 1000.  How does a good business plan defeat these tough odds?  More importantly, how does an ongoing business write a business plan for these turbulent times?  Today, businesses are seeing their old models decimated by lack of demand for their bread and butter products.  The businesses try to change and adapt by changing services or cutting costs and benefits, all in search of new strategies and models. Success in today’s marketplace requires more planning than ever and this type of planning is the best way to clarify and test a company’s ideas. Business plans must be based on the reality of today and tomorrow, not yesterday.

This article lays out some of the basic tenets of business planning in turbulent times.  The business plan that your company has in the minds of its principals needs to withstand the business pressures of today.  Obtaining investors and loans in these dynamic times requires a solid business plans in writing, vetted by all key stakeholders.  Business planning does not guarantee success, but the lack of business planning almost certainly guarantees failure.

Research, Facts & Value

A business plan must be a well-researched, fact-based document.  Poor business plans make great leaps from assumptions to projections. Excellent business plans are based on voluminous data on the cost of every element of the service or product being offered. They identify exactly who the customers are and how much they’re expected to buy over the next several quarters or years. Good business plans include research findings on similar products and competitors in the industry.

Today, for new products and services to be successful, they must meet the 10x rule –as in ten times better than the current option. This 10x superiority must be demonstrable with facts and statistics.  A good business plan clearly details how the idea or service is proprietary and protectable through the intellectual property laws and trade secret policies, and how it will deter reverse engineering.

Competitive/Market Analysis

A good business plan must make predictions not only about its customer’s responses, but also about how competitors will respond to the company’s success.  Conclusions in your plan should be fact-based rather than assumption-based. The more citations to outside research, the better these conclusions will be. A good business plan must show the names and relative prices of competitive products and services, their size in the market, and other objective measures of their value. Include detailed and clear explanations of how your company’s offerings demonstrably meet the 10x rule.

Three Financial Scenarios

A good business plan will present three separate scenarios with potential financial results that show how the company will survive in worst-case scenarios. A good business plan will provide details of the management team’s dynamics, where it succeeds, and where there is room for improvement.  Rather than merely stating that there is a gap, a good business plan identifies who is responsible for filling the gap and how it will be done.

Sales and Marketing Costs and Revenues

On the sales side, a good business plan addresses what the projections are and why it expects to secure x amount of sales in y time.  Have other companies done this? A good business plan must take into account actual experience-based data on the sales cycle and the full cost of securing large clients.

It’s been said that selling anything to Fortune 500 companies in today’s business environment takes an estimated $100,000 in sales, marketing, and advertising.  We completely reject this idea. What it will take is a plan to develop a product or service that solves a very big challenge for the customer, Fortune 500 size or not.  Further, it will take the coordinated efforts of many individuals who need to have read a great playbook created by the company.  Otherwise, they simply will not know how they can fully contribute to creating these excellent products and services that companies, even those on the Fortune 500 list, will buy. The sales and costs projections in a business plan must reflect the reality of this new selling environment by providing realistic estimates of what it actually takes to market and close deals. The process isn’t cheap but it can be budgeted. These costs must be allocated from current revenue to insure that the money will be available when the opportunity arises to make that large sale.

Conclusion

This new reality of the business landscape may seem harsh, but getting the plan right the first time is essential.  An excellent business idea that is not backed by a solid plan with clear implementation procedures will simply waste time and other valuable resources.

These basic tenants of writing a good business plan will help your company make the critical distinctions that are needed in today’s tough business climate.

 

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COMPETITIVE ANALYSIS: THE BASIC BUILDING BLOCK IN BUSINESS

Article by Herb Rubenstein,
President, The LEEEGH

Introduction

Everyone, including for-profit businesses, non-profit organizations, and educational institutions, has competitors. Organizations must be both intelligent (capable of learning) and knowledgeable (informed) about these competitors.

The goal of carrying out a competitive analysis is to identify your competitive advantages and disadvantages. The key is analyzing how to build on the advantages, and minimize the effects of the disadvantages.  The practice of analyzing your competition on a regular basis is a key aspect of your company’s ability to create strong sustainability strategies.

Competitive Analyses: Where Do You Begin?

To begin a competitive analysis, your company needs to answer these key questions:

  • Who are, and who have been, your competitors? Think very broadly
  • What are they doing and how are they doing it? How does it compare to what they’ve done in the past?
  • What do you think they will do in the next several years?
  • How have they changed/improved/

declined in the past several years?

  • How do you think they will change/improve/decline in the next several years?
  • How have they helped or hurt the organization in the past?
  • How do you expect them to help or hurt your organization in the next several years?

The sources of this information are everywhere including the telephone, newspapers, public libraries, your board members. You can also simply ask your competitors these questions directly. Harvey McKay’s business books stress the importance of knowing your competition intimately.

Organizations are not islands. To know where you are in relation to your competitors is important, even critical, in order to understand your organization’s environment. This means knowing your competitors. It involves being aware of the entire economic landscape. It includes predicting how future events are likely to shape your organization and the organizations of your competitors.

Competitive Advantage

The ASTD Strategic Planning Book says that competition is an opportunity. Competitive advantage is defined as “adding more value to your target customers/members/students than your competitors and at a competitive cost.”

Value is a tricky concept. First, value can be either real or perceived. An “increase in value” can be the result of increasing the quality or utility of a product or service, or by producing and delivering the same quality or utility at a lower cost, a faster rate or with greater convenience.

Second, value can never be separated completely from cost. Organizations must often undertake to keep their cost structure in line with an industry cost structure that is forever changing. For example, not only has the Internet cut costs of distributing products, but the “old line” automotive industry has also made great progress in cutting costs in manufacturing.

The result of a competitive analysis can be put in a diagram form, like an atom. At the core of the atom are the strongest, most sturdy competitive advantages that are the hardest to imitate. After identifying your organization’s strongest competitive advantages, list some of its less sturdy advantages. In the atom diagram shown below, these advantages are (and act like) electrons swirling around the core. These “advantages” could easily disappear since competitors can equal them in either a short time or without expending substantial resources. An organization’s relatively “weak” advantage could still represent an area where the company or non-profit is doing great work.

For example, one of MicroStrategy’s strongest competitive advantages is its recruiting of excellent employees (“stars”) and its employee retention ability. MicroStrategy has grown from 150 employees to 950 over a period of three years. It has developed and is successfully implementing a world-class human resource system. It includes a great hiring strategy (talent recruitment) and enormous spending allotments for training (called “boot camp”) and events like cruises and conferences. The focus is on developing a culture that makes it very comfortable for any employee to make any statement to any other employee, even the President.

MicroStrategy utilizes another tactic that we wouldn’t call a “core advantage,” but is still a great one worth noting.  The company has approximately $40 million in the bank as the result of a very successful Initial Public Offering of stock in the company in the 90’s. By the end of the decade, its stock price was regularly 2–4 times its initial offering price. Given the ability of other high tech companies to raise substantial amounts of capital and to have strong stock price showings, this advantage is more like an electron rather than a core advantage, since other companies can duplicate it. We would, on the other hand, acknowledge that having $40 million in the bank is a significant advantage for a company over less capital rich competitors.

ASTD, on the other hand, has as its core strengths a longstanding, nationwide network of local chapters, a great publishing track record, highly successful conferences, and an excellent research department. Although it serves its members well with quick response and thorough support, other competitors could match ASTD on its general customer support functions. ASTD identified 88 competitors in its strategic planning book, “The Red Book.” In the ASTD strategic planning process each competitor is listed by name, address, phone number, number of employees, name of senior executive, and a description of what the organization does. This type of complete analysis allows ASTD to determine which competitors pose the greatest competitive threat, and the ones with which strategic alliances should be sought.

Intellectual Property As A Source of Competitive Advantage

With regard to CocaCola, or any other soft drink brand, one of the core competitive advantages is the symbol and packaging for its product. While in Brownsville, Texas one of the authors observed what appeared to be a Coke can with the brand’s lettering and color scheme, but with the writing in Spanish. This can was not a “Coke” can and did not contain the Coke product. Rumor had it that sales of Coke declined significantly before these cans were taken off the market. We have heard estimates of tens of thousand of corporate logo violations annually and we are aware of strong organizational efforts to police intellectual property rights.

The entire body of intellectual property law is designed to allow trademarks, copyrights and patented information to become core strengths and major assets of an organization. Without these laws, the advantage given by “branding” would be very small and would fly away from an organization as easily as electrons fly away from the nucleus of an atom.

One new strategy of organizations is to conduct an intellectual property audit and appoint a senior officer as “V.P. for Intellectual Property.” Identifying the intellectual property assets of an organization, maximizing their value, and policing the Internet and traditional venues of commerce for violations will certainly become a more heavily used high-growth strategy in the future. Intellectual property has the distinct advantages of distinguishing your organization and its products from all others. This creates loyalty within the organization (among employees and investors) and outside it (among customers, vendors and the media). Intellectual property has a shelf life that can last hundreds of years with the value increasing over time rather than suffering from diminishing marginal returns. The best competitive analyses will discuss plans for promoting and exploiting the value of your intellectual property rights, and will compare how their value stacks up to that of the competition’s.

Significant and longstanding competitive advantage generally comes from a number of sources (better price and service, for example). Also, an organization must have some large-scale advantage related to its core strengths or competencies. This type of advantage will serve as the key launchpad for development of successful high-growth strategies.

Securing intellectual property protection for logos, inventions and other intangible assets can be expensive. However, it is often this protection that heightens value just enough to catapult that growth strategy into a high-growth, sustainable strategy. A general rule of thumb regarding intellectual property is “If you do not want your competitor to use what you have, protect it with a copyright, trademark or patent in as many markets as you plan to compete in in the future.”

Limiting The Impact of Competitive Disadvantages

It is equally important to analyze an organization’s competitive disadvantages in order to avoid strategic disasters. An entire book could be written just on the topic of competitive disadvantages because they play a pivotal role in limiting or short-circuiting efforts to create high-growth strategies. A few sources of competitive disadvantage include:

  • poor geographical location
  • lack of market share
  • high cost relative to competitors
  • less money, resources, talent, or intellectual capital than competitors
  • weaker transportation and distribution systems
  • outmoded manufacturing facilities
  • less effective, insightful, productive research and development (R&D) programs
  • weaker reputation and less publicity/brand name appeal
  • less developed organizational infrastructures
  • less skilled or trained workers
  • inferior management or board of directors
  • weaker supply chain management systems
  • weaker use of technology
  • weak CEO
  • limited access to capital

While thinking about an organization’s competitive disadvantages, it is important to get beyond standard measures and categories and analyze why these disadvantages exist, and how to craft strategies that can either improve these issues or limit their adverse impact on growth potential. For example, you may find that your organization has a number of competitive disadvantages, including that it is less willing than its competitors to:

  • take risks
  • make good, quick decisions
  • change and innovate
  • invest in training, employee development and new technology
  • modify business models
  • seek strategic alliances or enter into joint ventures
  • turn suppliers into partners
  • get to know its customers by listening
  • accept less profit per sale in order to expand total sales

All of the areas listed above may be the root causes of your organization’s competitive disadvantages. They need to be dealt with in order to achieve strength in your organization’s ability to compete effectively. One CEO we interviewed informed us that an organization cannot be strong in any of the areas of marketing, employee recruitment and retention, finance, technology, administration, product development, public relations or organizational development unless the CEO has been personally well trained in each of them. His view is that a thorough “competitive analysis” must include a careful study of the strengths and weaknesses of the competitor’s CEO. When this company identifies a competitor CEO’s weakness, the tendency is to assume that the entire organization will be fundamentally weak in that area of business. This company then develops its competitive strategy to focus on the area of weakness of the CEO of its competitor.

Prabhu Guptara, Group Director, Organisational Learning & Transformation, Union Bank of Switzerland and Chairman of Advance, Management Training, Ltd. has developed a similar theme over the past 20 years, arguing that no CEO today of any organization of any reasonable size can function properly without a clear understanding and proficiency in all related computer technology. The multi-faceted position of CEO today clearly requires a broad-based set of skills. Organizations whose CEO has a limited, specialized base of skills and knowledge often face a serious competitive disadvantage when competing with more broadly trained and skilled CEO’s.

Evidently, what one person believes is a competitive disadvantage, another person may see as an advantage. However, clarity must be sought in determining whether a particular fact is either advantageous or disadvantageous for the particular goal in mind. If after careful analysis, there is doubt, ambiguity or disagreement regarding a particular item, put it in both categories and analyze it accordingly. Of course, whether the glass is half-full or half empty often depends on whether one is pouring or drinking!

Conclusion

For those of you who think your organization or business does not have competitors, the authors strongly suggest to you that you do have competitors. The De Beers diamond company has an expansive view of its competitors. In a recent advertising campaign, diamonds are prominently displayed and the caption reads, “New Kitchen… Next Year.” However, if you still do not think your organization has even one competitor in the world, you can still use a form of a competitive analysis that will be useful.

Compare your organization against itself (its past and expected future), or against some ideal or benchmark (numerical goal) that you give your organization. Apply the same techniques in the analysis and compete against “yourself” as you constantly look for outside competitors.

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STAKEHOLDER ANALYSIS

Article by Herb Rubenstein, President, Sustainable Business Group

Introduction

The days of “one man rules” are dying fast. Some suggest the days of “one woman rules” are coming fast. Most likely, the future will be characterized by a middle ground where enlightened leadership will be leadership that actively takes into account the positions of many groups within an organization.

Stakeholder analysis is the systematic identification of key stakeholders and appraisal of their influence and posture towards implementation of high-growth and sustainability strategies. This form of “organizational radar” is necessary at the early stages in developing these strategies, in order to avoid wasting resources on a strategy that key stakeholders will not support.

Broadening Your Definition

Organizations need support of front-line workers who can determine the exact level of customer satisfaction that is achieved. Management needs to know what the front-line workers are learning from customers on a daily basis. Companies need to know who the stakeholders are in every situation:

• the Internet
• human capital
• knowledge management
• the role of teams and virtual teams
• values-driven growth models
• new paradigm for boards of directors
• Councils of Masters/advisers
• spinoffs/spinouts
• outsourcing
• consolidation and roll ups
• profit zone analysis
• globalization

For example, Child Trends, Inc. is a non-profit organization that analyzes data on the well-being of children and youth. With a budget of nearly $3 million from government funds, foundations and publication revenues, the organization prepares papers for key Congressional Committees and policy makers in the US at the federal level.

When asked who the stakeholders were for their organization, we were told that the 100 leading federal policy makers were the key stakeholders. Our own analysis of their research findings shows that the true stakeholders are the 50 million people in the US who either are children, have children, or are likely to be very interested in the well-being of children. An organization with 100 stakeholders will have a completely different business model and different breakthrough potential than an organization with 50 million.

Just ask the people at the American Association of Retired Persons (AARP), which has 32 million members with over 500,000 persons volunteering on a regular basis. This is an organization that knows who its stakeholders are – and it is not the 100 leading policy makers on issues affecting the senior population.

Stakeholder analysis is also very helpful in reformulating and improving high-growth strategies in order to win the approval of key stakeholders who have objections. Defining the key stakeholders as broadly as possible will open up not only areas of potential, but also new approaches to rapidly expanding the capacity and capability of your organization.

Organizations usually define their stakeholders as owners – people occupying powerful positions within the organization, or people with the power to affect the organization’s costs and revenues significantly. Stakeholders may be internal or external. This narrow, stifling view of stakeholders may have been appropriate before the world became linked, or at least linkable, via the Internet. It is now less appropriate.

Defining who the key stakeholders are is an art. But, we do know that most mistakes are made by defining stakeholders too narrowly. Usually, stakeholders are defined by their power within the organization. We expand the term stakeholders to include people who are currently outside of your organization who could become an important part of your business model if you achieved breakthrough growth. Stakeholders are those interested in and capable of significantly contributing to (or creating barriers to) your organization implementing high-growth strategies and improving its organizational capacity.

Another example comes to mind of how a progressive organization defined its stakeholders far too narrowly. Upon the proper identification of the broader range of its actual stakeholders, it reversed a key policy and embarked on a very successful high-growth strategy.

For several years, Starbucks refused to serve drinks with skim milk and non-fat milk, as Howard Schultz believed the company should only sell coffee with whole milk. Schultz reportedly said that products with skim or non-fat milk could not be “Starbucks products.”

Presumably, he was trying to keep his company’s products consistent with those whole milk coffee products he experienced in Italy and upon which he modeled his company. By refusing to sell skim and non-fat milk in his products, he may have been faithful to the tradition upon which the Starbucks product was based, but he ignored the important stakeholder: the person who wanted the Starbucks’ experience, but did not want the taste, fat or calories of whole milk.

Involving Employees

In the Starbucks example, someone within the organization spoke up often enough and loudly enough to change not only the way Starbucks served coffee, but also how it defined itself as a business. This illustrates the value of the employee as a stakeholder.  The result was that the company was able to multiply the number of customer shareholders and capture increased earnings from these additional sales.

Stakeholders, especially those within the organization, do have immediate political power. They must have an opportunity to have their views heard at every stage in the process. Employees are clearly stakeholders.

One airline in the US did not consult its employees on an issue that adversely affected the employees and soon thereafter customer luggage mysteriously began to be rerouted to the wrong city to the great dismay of customers – and you thought they “lost your baggage” through incompetence!

The stakeholder analysis will tell you early on which stakeholders will need to have their issues addressed before strategic alignment takes hold. In addition, by weighting the relative influence of each stakeholder or stakeholder group, an organization could go far in gaining insight into making the right judgment calls.

Two Analytical Methods

In the Starbucks example, the relative influence of hundreds of thousands of potential customers for skim or non-fat products should easily have outweighed the lone voice of one man, Howard Schultz, voting with the past in mind rather than engaging in breakthrough thinking.

If Starbucks at that time before skim and non-fat milk products had sought to reinvent itself to expand its customer base, rather than sticking to its traditional product line, it might have had an easier time in giving consumers what they wanted. Today Starbucks sells ice cream and other products, and is clearly a company capable of listening to all of its major stakeholders.

A deeper form of stakeholder analysis is called the stakeholder agenda analysis. This type of analysis takes each stakeholder, one at a time, and probes deeply as to why this particular stakeholder is either supportive of the high-growth strategy or against it.

This detailed analysis is now becoming more critical as our workplaces are becoming more culturally diverse, and a higher level of understanding of the values, predispositions, attitudes and personalities of key stakeholders is becoming more important.

This form of “high touch” analysis is qualitative in nature and subject to being only as good as the person performing the analysis. However, its value cannot be underestimated in getting an organization from the conceptual stage of “we want high-growth” through successful implementation.

A third stakeholder analysis technique called stakeholder prioritization completes the stakeholder analysis triad. One of the authors developed this technique while working with Domino Printing Sciences, an international technology company based in Cambridge, UK.

The process rank orders the stakeholders in terms of the importance they have or influence they have in getting their way within the organization. Use of this simple device creates a navigational device through the political minefields of the organization and provides key insight to strategic planning consultants in the development and promotional aspects of the planning process for high-growth strategies.

Conclusion

Stakeholder analysis requires learning. Often, organizations have never defined “stakeholders” more broadly than owners, board members, key customers, suppliers and top management. Defining stakeholders to include large blocks of potentially profitable customers or persons in need of the services or products that your organization offers could lead to breakthrough growth.

Often when organizations, especially non-profits, gather data and information showing just how many people need their services, they get energized, raise funds, expand the number of volunteers, gear up their strategic planning processes and seek to expand to meet the need for their services.

To achieve success in the marketplace today, organizations need to know exactly who their stakeholders are. Gone are the days when an organization can narrowly define this group as just customers or board members.

Do not be conservative when labeling individuals or groups as stakeholders. The more stakeholders your organization can identify, the more opportunity is created and the greater your chances of achieving high-growth and sustainability. 

About the Author

Herb Rubenstein is the Executive Director of the nonprofit organization, THE LEEEGH, which stands for leadership in education, energy, environment, governance and health.  He is also the President of the Sustainable Business Group, a consulting firm to businesses, He is an adjunct professor of strategic management at the Global Energy Management Program of the University of Colorado Denver.

He is the lead author of Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations, lead author of Leadership Development for Educators, and the author of the American Bar Association book, Leadership for Lawyers.  He has authored over 100 articles and over 80 videos on business strategy, entrepreneurship, leadership, and improving organizations.

He can be reached at herb@sbizgroup.com or 303 910-7961. The website for the Sustainable Business Group is www.sbizgroup.com and for THE LEEEGH please see www.theleeegh.org. You can learn more about Mr. Rubenstein’s books at www.leadershipforattorneys.org, www.leadershipforeducators.org and view his videos at www.youtube.com/theleeegh and www.vimeo.com.

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RAISING MONEY FOR YOUR COMPANY: A PRIMER

Article by Herb Rubenstein, President, Sustainable Business Group

Introduction

Capital does not flow in mysterious ways. It does occasionally follow a fad or trend over the cliff.  However, capital generally flows where someone has already demonstrated, at least in theory, that investment in a particular endeavor will be rewarded handsomely. Some venture capitalists will say that they invest in “people” and therefore the quality of the management team is the essential ingredient.

Other venture capitalists will say that they invest in ideas, products, proven systems and market potential. If they don’t like the people they invest in, they just get rid of them anyway. The truth is that venture capitalists invest in industries or sectors that they believe are “hot.”

Almost every organization that has made it to a multimillion

 dollar or even a multi thousand dollar budget has a great rags to riches story. They will tell you that the money they needed came just in the nick of time from the last source there was any chance of getting a dime from. Most of these stories probably have some truth to them because entrepreneurs tend to feel comfortable spending all of their own money and all of anyone else’s money until they prove they are right, or go bust trying.

Rules of Raising Money

There are some general rules about raising money that every entrepreneur and every organization must follow whether seeking loans

(debt), capital (equity), or both. You (or your organization) must:
• invest your own money, time and effort in order to attract capital
• seek the money before you really need it
• shoulder a significant part of the risk
• give up a significant part of the ownership rights for large amounts of capital unless you have demonstrated a strong track record
• have a clear, simple business plan
• have a track record of success to secure the best deal
• have a solid vision and show great potential for the business
• have a good management team in place or willing to join in.

One company had a very successful initial public offering. They sold 4 million shares at $12 a share. Most of the shares were not voting shares. Therefore, company officials were able to keep 97 percent of the voting control of the company after selling well over 12 percent of the equity of the company. A key ingredient that allowed them to be successful with this approach is its stand that it will never be bought-out. This view – held since the beginning by the company principles – allowed investors to leave the voting power with the people who have given the impression that they will never leave the company.

Using Credit

Raising small amounts of money for businesses through debt has never been easier. With the proliferation of credit cards in the US and easy credit, small organizations, including non-profits, can often raise up to $100,000 in
debt capital. In fact, the authors are aware of companies putting in excess of $250,000 in company purchases on certain credit cards. It has recently been reported that 47% of all small businesses finance all or part of their businesses with credit cards and the amount of credit card debt for small businesses may equal the amount of debt owed by small businesses to banks through traditional loans. With the rebirth of “receivables” financing, companies, at a significant cost, are able to generate money through credit by selling their accounts receivables.

Conclusion

It is important to note that many businesses today do not require the amount of capital that they would have required just ten years ago. The growth in home-based businesses, leasing equipment rather than buying it, and other economic efficiencies created through information technology allow companies to do more with less capital. Strategic planners must become thoroughly aware of ways that their organizations can accomplish strategies with a low capital investment.

About the Author

Herb Rubenstein is the Executive Director of the nonprofit organization, THE LEEEGH, which stands for leadership in education, energy, environment, governance and health.  He is also the President of the Sustainable Business Group, a consulting firm to businesses, He is an adjunct professor of strategic management at the Global Energy Management Program of the University of Colorado Denver.

He is the lead author of Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations, lead author of Leadership Development for Educators, and the author of the American Bar Association book, Leadership for Lawyers.  He has authored over 100 articles and over 80 videos on business strategy, entrepreneurship, leadership, and improving organizations.

He can be reached at herb@sbizgroup.com or 303 910-7961. The website for the Sustainable Business Group is www.sbizgroup.com and for THE LEEEGH please see www.theleeegh.org. You can learn more about Mr. Rubenstein’s books at www.leadershipforattorneys.org, www.leadershipforeducators.org and view his videos at www.youtube.com/theleeegh and www.vimeo.com.

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