Why does your business need a board? This is a common question asked by entrepreneurs, CEOs, and business owners. While the benefits of installing a high performing board are well-documented (including one of our recent articles 5 Benefits of Installing a High Performing Board), many companies are hesitant to invest the time and resources required to establish a board, especially in light of the increasing compensation costs for private company directors (see our article Private Company Director Compensation is Increasing).
However, a well-designed board can be a valuable asset to your company, providing a range of benefits that can drive growth and profitability. To help answer the question of whether building a board is worth it, let's explore the potential return on investment (ROI) for installing a high performing board.
The ROI for a board is difficult to measure, but the results of our 2023 Private Company Board Compensation Survey paint a compelling picture. According to the survey, companies that installed a board saw an average of 65% revenue growth, with 96% reporting increased revenues and 91% reporting increased EBITDA. These numbers are even higher when boards are diverse.
With the median revenue of survey respondent companies being $105 million, it would imply that the average board helped produce tens of millions of dollars of revenue and presumably a commensurate increase in enterprise value. When compared to the average cost of ~$50,000 per director, it becomes clear that investing in a board can generate a strong ROI. A board can be one of the most powerful strategic weapons in your company's arsenal.
Since the pandemic, boards have become increasingly effective. According to our survey, 66% of companies categorize their boards as "indispensable" or "very effective" at driving corporate strategy. Board members are more and more willing to roll-up their sleeves and focus on creating enterprise value for the company, as opposed to just showing up for quarterly meetings. A high performing board with strategically selected directors can be essential to achieving corporate goals and improving profitability.
In her best-selling book, “Built to SCALE: How Top Companies Create Breakthrough Growth Through Exceptional Advisory Boards" Marissa Levin quotes Herb Rubenstein's 35 ways boards can help businesses drive strong ROI. It is a list that illustrates the breadth of things a company can ask of its board that have the potential to drive a strong ROI. We paraphrase the initial list below:
Introduce new customers to your business
Recruit highly qualified employees
Secure new sources of financing and capital
Provide independent advice on your company’s strategic objectives
Offer public relations support
Address human resource issues and help identify the right people for the right roles
Assist with finding office space
Establish a supply chain with favorable cost and delivery terms
Connect you with legal counsel, accountants, payroll services, and back office support
Provide competitive intelligence
Mentor the CEO and senior staff
Offer valuable contacts in the business community and other strategic advisors
Introduce you to valuable contacts in your industry
Help solidify your tech stack
Secure speaking opportunities
Advise on accounting issues
Recommend improvements to your marketing plan
Loan equipment, office space, or conference room space
Help improve your product or service offerings
Provide real customer feedback and support for customer relations management
Recommend strategic partners
Suggest conferences and events to attend
Recommend organizations to join
Advise on how to structure contracts with employees
Recommend how to share equity with employees
Advise on how to value your company and negotiate with investors
Provide leadership development training for the CEO and senior staff
Help set realistic stretch goals for the company
Advise on potential merger and acquisition opportunities
Improve the reputation of the company in the community
Offer guidance on a volunteer or contribution strategy
Advise on human resource retention policies, pay scale, and help negotiate terms with specific employees
Suggest new products or services for the company to offer
Offer consulting support and bench strength during times when the company is stretched thin.
In conclusion, if you take the time to establish a high performing board, the results can be extraordinary. By recruiting the right board members and maintaining a strong culture in the boardroom, you can harness the power of a board to drive growth and profitability for your company.