FROM THE PRESIDENT . . .

n the NCIC CapitalFund brochure and marketing materials, we state that we seek companies with an experienced management team. We also state under post investment assistance that "We work collaboratively to help the entrepreneur succeed, tailoring our assistance to the individual needs of each company."

What is equally important but not stated is that we evaluate the entrepreneur’s receptivity to advice and counsel as well as willingness to establish a board of directors/advisors.

Very few seed/start-up companies have a complete management team and even fewer have an experienced board of directors/advisors. We believe that a strong, active board is critical for success and is the most effective and affordable source of good management assistance available.

Clay Mathile, the very successful owner/CEO of the IAMS pet food company, feels so strongly about the need for mentoring and outside boards that he said in an article published in "Family Business Review" titled "A Business Owner’s Perspective on Outside Boards," that "I have learned that the worst thing than an owner can do is not have a board at all."

We have seen the value of independent boards in many of our portfolio companies. Vern Mangold, the owner of KOHOL Systems, a Dayton area die casting and foundry automation company, switched with very positive results from a family, friends and employee dominated board to one with three outside board members experienced in financial and manufacturing management.

Other portfolio companies such as the venture capital backed Color Savvy Systems, and Renaissance Engineering have both outside independent board members as well as experienced investors on their boards.

In assisting early-stage companies to identify and recruit outside board members, we have made the following observations and recommendations:

• Boards should be relatively small; five is ideal, but no more than seven members.

• There should be more outsiders than insiders, with management limited to no more than two seats.

• Companies should not have directors who are related parties, e.g., lawyers, accountants, bankers or vendors who are beholden to management.

• For companies financially backed by individuals or institutions, it is important to have at least one independent director knowledgeable in the industry.

• The outside board members need to be independent risk-taking peers with nothing to win or lose.

• Boards need to establish a workable corporate governance structure and stick to it. At a minimum, there should be an audit committee, compensation committee and a nominating committee all made up of non-management directors.

• The board meetings should be held at least quarterly, more often if necessary. Meetings should be scheduled a year in advance and all materials should be sent out at least one week before the meeting.

Strong, active outside boards provide a fresh viewpoint. They are generally more objective, more critical, more demanding, but they also should serve in a mentoring role to the CEO and key managers, acting as a "sounding board" for ideas as well as a source of ideas.

Clay Mathile concluded his article in "Family Business Review" by saying "I thought that a board of directors was only for banks and publicly held companies. No one was going to tell me what to do—it was my company! Today, I consider our board of directors to be one of the company’s most valuable resources. By the way, it is not so lonely at the top now."