Board Of Directors: Nine Things To Know
As we’ve seen in the last couple of weeks from companies like Uber, building out a solid board can have lasting implications on your professional and/or company’s trajectory. Here are 9 things you should think about as you build out a board of directors.
The purpose of the board of directors is to protect the interests of the shareholders. Early on, protection could translate to active support in product development, sales, team acquisition, investment and etc. As a company matures, boards take on a more governance role and ultimately supporting the senior management team to key milestones. Boards often deal with ownership related activities which include approving investment and option issuance.
2. Difference Between Board of Directors and Advisory Board:
If you’re planning on taking venture capital, you’ll most likely need to have a board of directors. (legally required) An advisory board is an informal committee of members selected by the executive team or the board of directors. They provide valuable insights, exposure, and/or expertise to the company but have no fiduciary responsibilities.
Normally, in the early days, your board is normally composed of the founders. If you think about the purpose of a board, this makes sense. There’s no magic number for board size, it’s normally 3 at the beginning expands as more entities become shareholders in the company. Board meetings at this point normally have a senior management meeting feel to them. As you bring on investors, it tends to morph into an organizational check-in.
Most early investors end up being passive and do not take a board seat. In the few times they do, its good to have them agree to step aside when the company needs board members with different strengths and experiences.
Depends on your board dynamic but monthly updates are the standard with quarterly updates as companies become more mature. While updates are important, for more specific challenges, it’s best to schedule time with specific board members to pick their brain. Communication may increase during period of high stress for the company like potential acquisition, IPO, or crisis.
As previously stated, it’s important to be deliberate about bringing the right kind of people on to you board. There’s several different types of director types. For example, the A list director has name recognition that gives your board and company added credibility in the country, industry, or community. There’s also the active director who normally is the chairman of the board. They are the key drivers of the board and provide the accountability. You hear about the chairman’s role a little later in the a company’s development but its crucial to have one of the directors take lead in keeping the senior management team honest. Lastly, there’s the wild card director. They should normally fill the competency gap between the management team and the other directors. These are normally the technocrats in their industry.
Information presented at board meetings should never be a surprise. Different executives have their way of engaging their board but these areas tend to capture the most important areas; Key company metrics and milestones, financials, team, general areas of concern or opportunity. I’d suggest sending a summary with this information monthly and focus board meetings on major pain points, trends, and evaluating market changes and how they affect the company.
8. Cultural Fit:
As you build out your board, its important to think about the culture you want to develop for the group. I think of cultural fit as the multiplicative affect someone could have to create a better environment for the other directors, company and shareholders. Thinking of cultural fit is also a great way to evaluate potential investors as they will most likely want a board seat.
9. Geographic Considerations:
Often times some of the best potential directors aren’t near your company. Ideally, you’d like to have your board of directors around, especially in the early days because you most likely won’t be able to afford travel fees. As you scale, you can buy tickets for out-of-town directors to join important meetings or you can just get comfortable with Skype.