Independent Board Members: Who to Hire at the Expansion Stage
As an expansion stage startup, your board of directors is an invaluable asset, meant to help and guide your company to its next level of success. Your board, however, is only as good as the sum of its members. We interviewed a few experts (and board members themselves) about important tips to keep in mind while looking for your board’s next independent director.
But First – Why Are Independent Directors so Important to the Makeup of Your Board?
Your independent director exists to offer your board a point-of-view, opinion and guidance that is not heavily influenced by money or ownership of the company. They offer a different perspective, provide specific industry or vertical experience, and can also help maintain a preferably odd total number of board members. You need them, so here are a few tips for selecting the right person for the job.
Coco Brown, Founder and CEO of the Athena Alliance, suggests that you first identify what your board lacks and what your company needs. Where is your company headed and what is that next “0” that you want to add? Once you have identified realistic goals (i.e. breaking into a new vertical or catching up in a sector that your company is lagging), you can think strategically about who a good person would be to guide your company in that direction. Look at the greatest areas of strength on your board. What are you missing? Maybe you have a highly technical team and you need a people leader to advance. Your independent board seat should go to someone with expertise in an area where your board has a deficit. Find the gap and fill it.
While identifying the strengths and weaknesses of your board is important, it is crucial to keep key company leadership needs separate. Do not conflate board needs with business leadership gaps. Trying to compensate for a lack of skill at the executive team level with a skilled board member will ultimately not solve the issue that you have in leadership. Coco Brown warns that when CEOs don’t have company leadership squared away, it will inevitably mess up the board. Her best advice to avoid this issue is:
- Remember that filling a board seat is not “urgent,” the company composition is more important.
- Keep your hiring needs separate by examining and identifying the holes in your leadership team and envision them filled. Then begin your board search from the perspective of an intact leadership/executive team.
Be Realistic About Who You Would like to Join Your Board
Just because someone has seen enormous success with a company you admire does not mean that they would be a fit for, or would even be interested in, joining your board of directors. Look for professionals with similar passions. What is a problem that your company is passionate about solving? Go find someone who cares as much as you do. Brown also warns against seeking out someone you view as a “CEO mentor” for your next board addition. Remember that the board and its members are meant to further the success of your company–not your own personal career. The moment you make your career mentor a board member, you have effectively lost your mentor–the success of a company and its CEO are not mutually exclusive. Also, keep in mind that if someone is hard to win over for your board seat, they might not be the right fit anyway; compensation should not be your critical bargaining tool.
Ultimately, people are likely not joining a board for the money. For an expansion stage board, Brown recommends compensation in the form of equity that translates to around $60,000 a year–the best way to calculate this rate is to translate the percentage of the equity to value. At the bottom end of the compensation spectrum, Brown says that $10k per quarter is the low number.
Whatever number you decide on, make sure you’re consistent in the logic you use to determine compensation. Don’t make one member of your board more valuable than the others. In reality, the “most valuable” individual in terms of success and notability might be least available to you.
Be clear and upfront about engagement expectations and time commitments. How many days/hours a month/quarter do your board members need to carve out of their schedule in order to be an effective team? At a minimum, you should have quarterly meetings, then on an individual basis, you can seek more time with each board member. As the CEO, you can decide how you would like to meet with each member of your board. Ricky Pelletier, OV Partner, recommends that there should be an expectation that you will build out relationships individually. All told, your independent director should expect to commit to anywhere from ~100-200 hours per year.
Think of Your Board as Your Team
You want to trust them and know that they are there to support and help make the right decisions for your company. The selection and vetting process for your independent directors is crucial and should be incredibly intentional. As your company grows and changes, you may find that your board needs to change as well. With careful selection of members, and the provision and understanding of predetermined term limits, these shifts should be relatively smooth and successful.