If your business is organized as a corporation or a limited liability company with more than one person, you have a legal and fiduciary responsibility to organize and operate a Board of Directors, or Board of Managing Members. Many entrepreneurs consider this their least favorite task. But take heart – a good Board can be an invaluable boon to you in the lonely work of navigating the roiling waters of a new venture. The key is to learn how to choose the right people and set them up with appropriate governance guidelines so they can take a meaningful part in the company.
A Board is composed of individuals who own stock or membership units in the company, and have been elected by the other shareholders/members to represent their interests and oversee the management of the business. They are men and women with extensive business experience who meet several times a year to hear from you how things are going in the business. They hold legal and fiduciary responsibility for the business, but they do not have the right to manage the company’s day-to-day affairs. They do have the right to remove you as CEO, however, so you will want to make sure you work with them, rather than against them!
David Nadler, Chairman of Mercer Delta Consulting and an editor of the book “Building Better Boards,” advises that the role of Boards has become more active in the wake of the many scandals of the 80s and 90s. “Nowadays, CEOs can and should look to their Directors as value creators for the company.”
“We are absolutely convinced,” writes Nadler in the book, “That active and appropriately engaged boards … can partner with senior management in an environment of constructive contention to produce better decisions than management would have made on its own.” To do this, he adds, boards must learn to operate as high-performance teams.
The first task in choosing board members, says Nadler, is selecting individuals who can address specific needs, such as legal or human resource issues, sales issues, and so forth. Look for individuals who are members of your industry.
Of course, any company that has invested in your firm will want to put some of its investors on your Board. You can balance this by recruiting some directors not directly connected with the company or the investors.
One mistake you may pay dearly for is recruiting people who are not well-matched to your business. For example, if you’re producing tablet and smartphone apps, and half of your directors are in their 60’s and don’t care for using these devices, you’re not going to get effective insights on your business strategy. Pay attention to personalities, too. You want people who have the capacity for dialogue and negotiation if you are to avoid contentious power struggles. The number of Directors, if not defined by your bylaws, will be determined by what you feel serves you best. You want a group that provides enough diversity of experience and insight that it is truly valuable to you, but not so large that you can’t manage them.
Establish clear, written expectations in your Bylaws for the roles and responsibilities of your Board members, the length of the terms they will serve, how their replacements will be selected, whether their decisions are binding, and whether they have hiring and firing authority. Attention to such critical governance questions from the beginning helps you avoid problems such as polarization or domination by one or two individuals down the road. It also helps to keep all of your Board members fresh and engaged.
Doing this will require a lot of work on your part. You need to set up a firm schedule of meetings and agendas well in advance, thinking through how the Board can be most helpful and what information you need to give them before meetings so they can be responsive to your needs. Provide clear and effective information about the company’s operations ahead of time, so you can use the meeting for meaningful discussions. Make sure that ongoing communications are maintained in between meetings as well. This last point is one many entrepreneurs miss. Thinking that their job is done when the meeting is over, they breathe a sigh of relief and go “back to work.” But if you think of your directors as your own resources, you will want to keep them abreast of major decisions you are wrestling with in between meetings. Do not blindside them at the next Board meeting. Doing so will diminish goodwill and trust in your leadership. If a crisis is brewing, don’t spring it on them without warning – engage them one-on-one and on a consistent basis.
REGISTERED EVE BUSINESS PROFESSIONALS
- EVE Registered Mentor Jason Jacobs, Entrepreneur, Early Stage Business Consultant
- Richard E. Honen, Attorney, VC
- Raimondo Archibald, Mgmt Consultant, Investment Banker
- Jim Lozano, Accountant, CFO for Hire
- Robert Hayes, Accountant, Serial Entrepreneur