Labcast: How to Recruit and Hire Great Board Members
July 8, 2011
“I’ve looked on Monster.com — there’s no section for board members,” jokes venture capitalist Jarrett Collins.
In the last of this this two-part podcast, Collins chats with Venture Partner Firas Raouf about how expansion stage companies can deal with the challenges of finding (and hiring) the right people for their boards.
In addition to his work at NeoCarta Ventures, Jarrett is also the CEO of BoardSpring, a company focused on promoting board-related best practices for venture-backed organizations. In case you missed it, be sure to check out part one of his podcast with Firas, where the two discuss some of the basic considerations for building a great board of directors.
How to recruit and hire great board members
PODCAST TRANSCRIPT
Brendan Cournoyer: Hello everyone, and welcome to this edition of Labcast, Part Two of a conversation between venture partner Firas Raouf and Jarrett Collins, venture capitalist and CEO of BoardSpring. Now, in Part One, Firas: and Jarrett discussed some of the keys to building a great board of directors for early and expansion-stage organizations. In this episode, the conversation shifts to how to find and hire that perfect board member. Let’s pick things up right where they left off. Firas had just mentioned that sometimes the best idea is to hire a corporate recruiter.
Jarrett Collins: Okay. Well, that’s a great segue into where I’m trying to think about what I do now that I’ve got this great piece of paper, or several pages perhaps that describe this persona. I’ve actually looked on Monster.com. There’s no section for board members. I don’t think Craigslist has one either. So talk about how you go from that great piece of paper, that ideal candidate, to actually reaching out into the wide world and finding that person.
Firas Raouf: You’re absolutely right. This is not something that’s been formalized out there in the recruiting world. Now, most top tier recruiting firms actually do actively recruit for board members, and it’s just like recruiting for any other senior role. Leveraging that work, do outbound prospecting, outbound calling, and then go through a recruitment process.
Jarrett: And this is the Heindrick & Struggles of the world, the Egon Zehnders, firms like that?
Firas: Yes, those are the large ones.
Jarrett: The big ones, right.
Firas: I would be looking for more of a firm that’s more focused on early-stage companies.
Jarrett: Got it.
Firas: What’s been interesting for me, because I’ve done several of these searches – a couple of them I’ve taken the lead on – I’ve come to realize there is an inordinate number of highly talented people out there who have taken on board roles as a profession.
Jarrett: This is their day job.
Firas: It is more of a half-day job. It’s a way to be semi-retired. So this could be a former, highly experienced, multi-time CEO who now is ready to take it a little easier and not be in the day-to-day role of the CEO, but be a CEO mentor. It could be somebody who is in a specific market, has extensive experience in that market and now wants to share that expertise. Or it could be a former CFO that has done a number of gigs and now is ready to take it a little easier and mentor other CFOs.
Jarrett: So the recruiters know these people, they know where they are, they know their summer addresses on the Cape where they can reach them and theoretically start to turf up a series of candidates.
Firas: Well, this is where the networking starts coming in. Part of what we try to do at OpenView is to be constantly looking for independent board members, even if we don’t have a particular portfolio company that needs one. So we maintain, through our own internal recruiting function within OpenView Labs, a database of those independents as we find them. That’s just part of our role in networking.
Jarrett: Now, I read in one of your blog posts, which were excellent, by the way; I haven’t found a lot of venture capitalists addressing how to have a high-performing board, and I think it’s great that you’re shedding some light on this. But in one of your blog posts you suggested that the company hire a recruiter if they can afford it. How much do you budget for a recruiter, and is this a retainer? Is this a contingency fee? What’s it look like?
Firas: It tends to be the typical, sort of what you would expect if you go out to hire a new CEO or if you’re hiring a very senior executive to the company. It tends to be a retained search.
Jarrett: Now, let me ask you a question though. If I’m going to hire a new CEO into the company, I think I can pretty reasonably guess at the pay range – let’s call it a couple hundred thousand dollars plus – and the retained portion of that is going to be a third of that person’s compensation in the first year, give or take. Board members may not have a lot of current compensation if it’s an early-stage company. So, do you take a third of the equity that they’re granted? How does this work?
Firas: I actually can’t answer that question because it really depends. You may have a recruiter who has an established relationship with the company and will do it on a significantly lower rate. It could be that you don’t even use a recruiter. I think part of the issue or part of the reluctance to use a recruiter for this role is because of this perception. Are we going to spend $50,000 to $75,000 or more to recruit a board member? It’s counterintuitive, and I think there is a need to find a happy medium because recruiting a board member should not be that expensive.
Jarrett: It shouldn’t be, and at the same time, you’ve said just moments ago, this is a really important hire. We can call it a hire, I guess. This is a really important appointment for the company. There are very few places in the company I can think of in my experience where there’s greater leverage for the company to go in the right direction or the wrong direction than in these board sessions.
Firas: Definitely.
Jarrett: Okay. Now you’re sourcing candidates. Your network is out there, whether or not, it sounds like, you even have a particular opening in your portfolio. You’re still networking, you’re still adding really talented, interesting people to your database. If you are sourcing candidates for a position on the board, who’s interviewing them? Do you interview them because you’ve taken a lead in this process? Does the CEO interview them? Does the whole board interview them? What’s it look like?
Firas: Well, again just like recruiting any senior member of the team, everybody will end up either interviewing them or talking to them. It really starts with who is taking the lead. Taking the lead tends to be a combination of the CEO and another board member. To relieve the CEO, who is extremely busy with day-to-day operations, what we try to do is make it the responsibility of one of the board members, the non-management board members, to take the lead, whether there is a recruiter or not. If there is a recruiter, working with the recruiter, finding the recruiter, retaining the recruiter, working with the recruiter. Leveraging the network of that individual and others on the board, doing the first qualifications, doing the first interview, and then having a plan of who’s next. Typically, who’s next would be the CEO. Highly qualified candidates then go to the CEO. If there’s good chemistry with the CEO, then they pass on to other board members. Then at some point, the prospect would talk to the senior team to get a sense of the company.
This sort of brings us to the topic of how do you actually recruit a person who is highly qualified. I think it’s absolutely imperative to realize that, again, recruiting a super-talented board member is no different than recruiting a super-talented senior executive, which means that it’s not all about simply qualifying candidates on whether they’re qualified to join your company. When you find a highly qualified board member, you have to sell that person. You have to sell that person on why this is the board that he or she should join, and it’s not guaranteed that a qualified board member would want to join your board. We went through a search with one of our companies where we actually had a couple of prospective board members who were highly qualified that everybody on the board really wanted them to join the board, and the candidate actually passed.
Jarrett: Tell me a little bit why that was, Firas. Was it something about the company they didn’t like? Did you not offer them the right compensation? Or should they have liked both of those things, but the company just didn’t do an effective job selling itself?
Firas: It’s typically not the compensation. In this case, it actually was this person had a desire to only be involved on boards of companies that can become really big companies. This person could not really envision or realize the vision of the company, felt that either the CEO of the company was not the person who could actually realize the vision, or did not believe in the vision. It was sort of a combination of the two, where the CEO’s ability to articulate the vision put the vision in doubt.
Jarrett: And presumably, these candidates are very discerning individuals who have accomplished a lot in their careers.
Firas: Absolutely.
Jarrett: They also don’t have, let’s say, an unlimited number of spots on their dance card. They’re not going to join 10 boards, despite the fact that some people might be doing this semi-professionally. Maybe they’re going to join a few boards because they don’t want to work 80 hours a week anymore. So that really does place a big burden, doesn’t it, on the company to make sure that it’s got its act together in terms of how it’s going to sell itself to a board member. Is it different selling yourself to a board member than it might be to that prospective VP of Marketing that you’re trying to recruit.
Firas: I think so, absolutely. I think that board members tend to be more experienced and more discerning. They tend to be more selective, and being on a board tends not to be the primary source of their living, whereas a senior executive is looking for a job because he has a mortgage to pay.
Jarrett: That senior executive candidate might be a little more forgiving if you’re sitting across the table from someone who’s going to help me pay my rent. This is presumably highly discretionary for a board candidate.
Firas: Right.
Jarrett: So, you’ve found Mr. or Ms. Right. How do you pay them? Is it current compensation, some kind of annual retainer? Is it a per-meeting fee? Is it equity? Is there a blend?
Firas: There’s definitely a blend. It tends to be a base cash compensation plus . . .
Jarrett: Can you give me a range? Any ideas there?
Firas: It depends on the situation, it depends on the person, it depends on the cash flow of the company. It could be anywhere from $1,000 a month to $10,000 a month, again depending on the stage of the company. From an equity compensation standpoint, typically what we see is anywhere from 0.2% of equity all the way to 2%, depending on just how operationally engaged the board member is. The 2%, which is obviously on the extreme, is where the board member is actually assuming perhaps a chairman role as well as a CEO mentorship role, perhaps actually being involved on a weekly basis with the company part-time to help them through strategic planning and things like that.
Jarrett: And these are non-qualified stock options, typically? Okay. Vesting over some period of time?
Firas: You typically see three years. I also encourage thinking about two years, because I think that two years is probably a good tenure for a board member before they really need to move on and bring in new talent to the board.
Jarrett: So this isn’t an appointment for life.
Firas: Absolutely not. At least, I don’t see it that way. Early-stage companies are very dynamic, they’re always changing, and two years in the life of an early-stage company is almost like an eternity.
Jarrett: Okay. So relatively rapid acceleration of resting period, that is two years. Have you explicitly told this candidate that it’s probably just going to be two years? Or do you keep that pretty open?
Firas: I think you should have that conversation early on.
Jarrett: Okay. They presumably won’t mind because it simply means they vest their options more quickly.
Firas: Right.
Jarrett: Well, this is great. I want to be sensitive to your time. I really appreciate your giving me a chance to ask you these questions. It’s a process that you’ve obviously given a lot of thought to. I know that the people watching this and listening have really gained a lot from it, so thank you.
Firas: Well, I really appreciate you joining us today, and you’ve asked great questions. I’m glad I could help, and hopefully I’ve answered them well.
Jarrett: You have. Thank you.
Firas: Thanks, Jarrett.
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