Have You Looked at Your Board of Directors Composition?
March 22, 2011
Expansion stage CEOs and founders spend a lot of time analyzing the makeup of their management team and their own performance as the boss of the operation.
And they should. Introspection and self-analysis is necessary to make sure the right people are in the right places doing the right things. But that goes for the construction and composition of a company’s Board of Directors, too.
Like the management team itself, the board plays an incredibly important role in a company’s development. It acts as an objective beacon, providing experienced, market-relevant advice as the company defines its growth strategy, builds its economic model, and pushes to improve operational execution within the business.
So, making sure that you have the right board members in place to provide that guidance is a key step as companies begin to plan strategically for the future.
Finding the Perfect Board Member
As a venture capital firm, we typically propose that the composition of the board be made up of five members: two from the portfolio company, two from our firm, and one outside board director.
In the first year, we work with the portfolio company on the operational fundamentals — building out the right business processes so that the company is prepared to scale in a capital efficient manner. Then, we work with them to recruit an independent board member that will benefit its overall development.
For companies that are aren’t backed by venture capitalists, this advice still applies. Instead of just one independent board member, you may need a few. They key is to find board members that will bring unique experience to the table and add value to the overall direction of the business.
Identifying the Value
Before naming anyone outside of the company to the board, the CEO and the management team must discuss the areas of the business in which an outside advisor could bring the most value. That means examining that person’s benefit to the company as it relates to:
- Experience in financial operations
- Industry specific experience
- Strategic relations with other players in their market segment
- Business development
- Operational experience in customer service, marketing, sales, product management, and development or consulting
Once you determine the most valuable area of expertise, the next step is to define a profile and begin the search.
During the recruitment process, make sure that the potential independent board members understand that their appointment is not for life. As the company’s needs change, the Board dynamic and its makeup may need to change with them.
Add to the Board as Necessary
As your business continues to grow, it’s not uncommon to recruit another outside director with a different expertise to add to the overall composition of the Board. That member may replace one of the investors sitting on the board or they may be an additional piece to the puzzle. Either way, their independent expertise (if you find the right person) should ultimately add more value to the development of the company.
Of course, you don’t want to add members just to grow the size of the board. As Tim Donnelly at Inc. points out, members that don’t fit the Board’s structure or share the same goals can create the nightmare scenario of power struggles, bickering, and deadlocked decision-making.
Quite simply, independent Board members should represent a council of voices (or singular voice) that bring unique expertise to the table. They need to possess a deep understanding of your industry and the market it operates in, allowing you to cooperatively and strategically plan for future success.
One of my peers, Firas Raouf, wrote an excellent blog titled “The Board Imperative – A Balanced and Cohesive Board” that I highly recommend reading. Firas goes into great detail about the ideal composition of a Board of Directors, but his main point is that it needs to be highly aligned around a set of key corporate objectives. If the board is composed with them in mind and then works together to execute them, balance and cohesion will likely be achieved.
So take a look at your board and ask whether now is the time to add an independent member or, if the company’s needs have changed, replace a current one. If you get the composition right, the company’s focus and long term health will undoubtedly benefit from it.
Looking for a complete guide to assembling and managing the board of directors your company deserves?
OpenView’s ebook, Building a High-Impact Board of Directors: A Guide for Expansion-Stage CEOs leverages OpenView’s considerable experience working with entrepreneurs like you to provide the insights and actionable steps you need to:
- Understand the value that an effective board of directors can provide
- Assess whether or not it is time to change your current board
- Recruit and assemble a high-performance team
- Establish a clear management rhythm to engage your board effectively