Getting the most out of your board of directors
For almost every founder I know boards are a mystery. When I imagine a board I see large group of slightly stuffy people sitting around an expensive looking polished mahogany table. How are they supposed to help a fast moving startup?
Speaking to a friend recently they told me about a particularly challenging situation with their board, the hours they put into creating board packs setting board meetings and they get nothing. No meaningful discussion. No accountability. No challenges.
“Is this normal?” they asked.
I picked up this book to calibrate my ownn expectations of what a good board should look like.
1 paragraph summary
Functioning boards are an unnatural state. Boards are accountable to everyone involved in the company, shareholders, investors, customers and the team. Creating an environment where a group of people can balance all of these competing priorities is a challenging role. It’s your responsibility as a CEO of an early stage business to ensure high quality directors, set the tone for working together and build an environment of strong communication and trust. An effective startup board should be advising on important decisions, shaping the strategy of the company and acting as an extension of the team.
Being a Brad Feld (of Venture Deals) book, this thing is both incredibly information dense and very easy to read. I won‘t even attempt to summarise it all. Below are a few key areas that stood out as especially relevant for a company of Vow’s stage.
What is the responsibility of the board?
A board exists to represent the interests of all of those involved in the company. This includes the team, shareholders, investors and customers.
The board’s responsibilities can be loosely divided into three buckets:
- Legal duties: put in place controls and processes to make sure the company isn’t doing anything illegal. For instance, have appropriate financial controls to make sure the company isn’t trading insolvent. Or firing a CEO who has committed fraud.
- Hire and performance manage the CEO: fairly self explanatory! With the important caveat that the CEO doesn’t report to the board, the board’s main recourse against the poor decision making of a CEO is to replace them.
- Shape and inform the strategy: unlike the other two this isn’t a core obligation of the board, but a function a well functioning startup board should have. This doesn’t mean setting the strategy for the company, instead acting as a sounding board, providing experience and advice to shape a strategy.
Who should be on your board?
Early stage founders often don’t get much choice, they raise money and a condition of that is a partner from the venture fund gets a seat on the board. Outside of VC directors it’s up to the CEO and the board to shape the make up to give the company the best chance of succeeding.
There are a huge number of roles effective directors can play, from supporting capital raises to CEO therapist to specific advice about target markets. Due to all of these roles board should not be static. Instead they should evolve as a company does.
In an early stage having a director who can help shape and guide your customer discovery is extremely valuable. A few years on, in a growth phase, this same skill set is a liability.
What is the best skills to look for in an early stage director? According to the authors, CEO’s tend to make great independent directors.
Recruiting directors should be treated like recruiting executives, taking an intentional, wide and thorough recruitment process to find the best candidate.
Gender diversity: you should have it — even though most companies don’t. Companies with one or more women on their board have 36% better stock price growth and 46% better return on equity.
What is required for a functional board?
Boards are not executives, they don’t run the company operationally. A successful board guides the company through influence. What should this relationship look like?
Trust — the foundation of any functioning board is trust. This is both between the directors and between the management team and amongst the directors. Each member involved must be able to trust that board members are doing their duty on behalf of all stakeholders and not just for their own benefit.
Communication — the foundation of this trust is strong and open communication. There should never be any new information shared during a board meeting and you should never be selling to your board. A suggestion in the book is to over-communicate bad news and under-communicate good news.
Public and private support — a board should be unequivocally supportive of a CEO, unless a decision to replace has been made.
Availability — board members should make themselves available to the company and the CEO. You should expect your directors to respond to any matter within 24h.
What should a board meeting look like?
A good, well functioning board meeting is something most founders will never have seen.
Who should be there
- Your management team to provide business updates
- Your directors
- Any board observers
- Your lawyer — both to take minutes and to provide legal advice
Length: 1–4 hour per meeting
Frequency: every one to three months
All meetings should be scheduled a long way in advance
What should be covered?
Typically the following topics should be covered:
- Business update — typically an overview from the CEO and then specifics from individual executives
- Financial updates & planning — including reviewing key metrics and approving any future financial plans or annual budgets
- Procedural matters — approving option grants, compensation changes or key hiring decisions.
- Strategic discussion — the important bit!!
A pack of slides (or a memo) should be put together by the CEO. This should cover each of the matters covered above. This pack should be sent out at lest 48h before the board meeting to give plenty of time to digest any information included.
Brad Feld’s Venture Deals is amongst the top of my list for the most helpful books I have read as a founder. I put Startup Boards on a similar pegging. It is something I will be reaching for often.