Does your company have a board of directors? For companies that are not publicly traded, there is no legal obligation to create a board of directors or advisory board. Often, new startups come right out of the gate with a board of directors built-in, full of mentors, advisors, and investors/VC guidance, but some middle-market and large companies are seeing themselves with only a CEO as the head of all decision making for an entire business.
Just because you aren’t legally obligated to a board of directors doesn’t mean you don’t need one. From a day-one entrepreneur to large-scale private companies, a board can be vital to growth and sustainability of your company. While you might be reluctant to give up the complete control of your company, having a team of engaged, experienced professionals alongside you is far more likely to give you an advantage, rather than holding you back. Outside perspective, mitigating risk, preventing CEO tunnel-vision, creative brainstorming, increased credibility, and gut check decisions, as well as guidance in planning for the future of your company and plotting the map for aggressive growth are all upsides to having a board.
But you need to have the right people on your team. You need to make the cost of a board worth the value they provide. You need to have people who will drive the company and bring the right ideals. You ideally need people outside of the corporation, for a perspective not mired in the day-to-day.
From Forbes: On having too many or too few board members: “Size does matter. I recommend three or five members to start (an uneven number prevents tie votes). Too many members are difficult to schedule and manage, and cost too much. Less than three is not a board. Members should be compensated, starting at one percent of stock or a small retainer plus expenses per quarter. Their value will be well worth the investment.” I recommend no more than seven members.
What should you look for in members to bring in to your organization?
Growth: You ideally want to look for members with more experience than you, or at larger companies than yours, or who are incredibly creative and aspirational. You need to look ten years into the future of the company and see what these people can provide now, in that future, and how they would be able to get you there in between.
Fit: You want to make sure that there is an identity compatibility between the potential member and your company. Do they understand the corporate values? Do they understand your goals for the company 10 years or more into the future? Do they understand your current areas of opportunity and they way business is done now? Also, and this is important, you need someone who sticks to their guns. Would they quit the board if they thought your decisions were harmful to the company or disingenuous? Having a “yes man” on your board is a waste of time and money. You need people who will be vocal, consistent, and believe in what they say.
Diversity: You want to make sure that there are a variety of skills, backgrounds, and perspectives on your board for a more complete team. You want everyone to work together, but you don’t want everyone to think the same. If you are technology-based, have a developer on your board, but also have someone with 30 years experience in a non-technology company. Make sure there is management experience mixed in, at least one person who understands boards and governance (particularly if they have been chartered by the National Association of Corporate Directors) Get someone who is representative of the customer you are trying to sell to who can voice for the client in the decisions. Someone with excellent professional connections is a boon to any board. Diversity in race, gender, professional career, and background won’t just help with making informed decisions for your company and clientele, it will also give you viewpoints and strategy you would never have the perspective to see.
Clarity: Make sure that you give each member a title, and a specific duty or area of focus within the company and the board. Keep them accountable to these duties, and make sure that they play to the strengths of the individual, but mesh with the team as a whole. Don’t play favorites, even if your board contains investors in your company. What is best for the business is best for the investor, and make it clear that you will not cater towards one vote or opinion.
Longevity: Remember, in the hierarchy of the boardroom, the CEO now reports to the board. This can cause power struggle and frustration. To prevent this, aim for total consensus in each vote, not just settling with the majority. Check each candidate’s track record (tenure, reasons for leaving, relationships developed) as board member at other firms. Ensure engagement and accountability from each member, always. Replace board members who negatively impact the board’s internal relationships. This is not easy, but in extreme cases, it is necessary.