“Leadership and learning are indispensable to each other.” ~ John F. Kennedy
In every company in which I have been involved, I have made sure there is a strong, supportive Board of Directors (BoD) in place to guide the business.
As the entrepreneur and probably the majority owner of your company, you will form and be a member of the board of directors, usually acting as its Chairman. (Yes, I know, many great entrepreneurs are women! Robert Hickey talks about various forms of address if the Chairman is a woman.)
It is not the BoD’s job to run day-to-day operations of your company. It is there to discuss and establish the strategic direction for the company while developing policies and the control framework within which management operates. The board’s members discuss important issues of the company with the CEO, and together make decisions that will protect investors and shareholders. The directors also advise and support the CEO.
“[The BoD] is there to discuss and establish the strategic direction for the company while developing policies and the control framework within which management operates.”
Every entrepreneur needs help – we all do. If you’re like me, you already get lots of help and support by talking to colleagues, friends, and family members. Yet, sometimes it’s very difficult to find the experienced support you need, and that’s where a BoD can help. Forming a BoD at your company is a great way to take your business to the next level by creating more structure. When people get together and brainstorm, you will get even more ideas about ways to grow your business.
Here are my top ten tips to help you build a great Board of Directors that will do more than just support you in growing and managing the company. It will also signal to investors that you are committed to the well-being, corporate governance, and growth of your business:
- Make a Start in the Early Stages
Don’t wait until you need to raise capital to put together a strong board of directors. As you build your company, think about what skills you will need to help you grow in the future. Having a BoD in place early in the business-building process will show investors that you are serious about success and value the guidance of successful business people. Board members can advise and work with you as you raise capital for your business. They may even invest themselves, or know accredited investors who might have an interest in your business. It is a good idea to put the board membership in writing so that everyone takes his or her commitment seriously. You should also ask members to sign nondisclosure agreements (to protect you) and release of liability forms (to protect them). Of course, it’s important to choose people you trust and can be open with. But, as you go down this path, remember to talk with an experienced business attorney and have him or her draw up the paperwork, review your bylaws, and advise you.
- Don’t Build a Board of ‘Yes’ People
Ciara Pressler of the Huffington Post wrote an interesting article entitled, ‘Yes People’ Will Kill Your Business: It’s Time to Identify and Engage Your Advisors. It’s a great read and on-point. Choose board members who have different perspectives and are not afraid to share them. Don’t appoint people to your board who will simply agree with everything you say. We all need to be challenged.
“Play to your strengths by filling the board to cover your weaknesses.”
- Consider Those Who Have Proven Track Records of Success in the Global Market
If engineering, project development, design, or marketing aren’t your main strengths, find board members who have proven track records in these areas. You also want members with experience in raising capital, taking a company public, international business/global commerce, finance, and marketing. Play to your strengths by filling the board to cover your weaknesses. For example, don’t hire another entrepreneur if you are that person.
- Carefully Think About Personalities
Bryan Stolle, who was the founder and CEO of Agile Software (formerly, NASDAQ: AGLE), wrote a great article for Forbes Magazine: What Makes A Great Board Member? (You Really Need To Get This Right). Among other useful advice, Bryan asks the question: So, what does make a great board member? His article is another great read. Bryan’s advice? “……ultimately a board member’s style should be compatible both with that of the CEO and with the other board members. It’s very important that board members know how to effectively communicate with you and the other board members, are able to constructively address issues, and be civil yet still direct and transparent. Ultimately, you need your board to be able to collaborate and work well together, and with you.”
- Think Both Short and Long Term
Most businesses make mistakes when they are in the very early stages. What you need are board members who have started their own businesses and can help you organize your new venture. But, equally important is to think about the long term, too. Don’t recruit board members whose only experience is early stage businesses. Look to those who have a combination of experiences growing businesses to their full capacity.
- Where You Start Isn’t Where You Finish
Just like employees, some board members won’t work out. You will need to deal with this one carefully. If you followed my advice in tip #1, you will have made sure your attorney has been involved and perhaps made a provision in your corporation’s bylaws that includes a method for formally removing a board member for egregious acts, failure to fulfill duties, or conflict of interest. Whatever you decide to do about a board member situation, your attorney should be part of the discussion. Having your company attorney in the discussion can avoid additional unpleasantness and possible lawsuits. Always remember that you are the one in charge of the business. As such, it is your prerogative to both hire and fire. My advice? Don’t wait. If it’s not working, let the board member go as soon as possible.
- Leadership is Exemplified by the Tone at the Top
The Chairman of the Board and Board Members are expected to establish a tone at the top of the organization for high ethical standards. Make sure the board and senior management deliver a strong message to others in the company about the importance of integrity, compliance with the law, and overall good business ethics. Leaders should demonstrate their commitment through their individual conduct and their response to control failures. In other words, lead by example! Don’t appoint board members who have a difficult past and/or a history of business failures. Check federal, state, and local records for evidence of misconduct. Ask your attorney for help in this area. (Note: This applies to employees and consultants also.)
- Compensate Your Board of Directors
As you invite individuals to your company board of directors, offer compensation. The people you will ask to serve on your company’s board are busy people, probably with their own businesses. They have limited time and will be serving as a favor to you and to help you get your business started. Although you might not have a lot of cash on hand (most startup businesses do not), consider offering the board member some shares of your company in exchange for his/her services.
- Ask for Help! Board Members Work for You
Put board members to work. They can assist with strategy questions, direction, and advice, and provide perspective. If you have recruited experienced board members, chances are they have come across a particular business matter before and are able to apply their knowledge to your situation. This can be incredibly valuable. But whatever you do, please don’t ignore a problem until it becomes a major issue. No one likes having a problem dumped on his or her lap that perhaps could have been resolved earlier. Forewarned is forearmed, as they say.
- Build a Board of Informed Advocates
Go out of your way to connect with board members who have deeper experiences in specific areas of business (e.g., fundraising, compliance, risk, innovation, etc.) or industries. The best entrepreneurs keep everyone informed about where we said we are going, where we are currently going, and why we changed plans if we did. It’s very important to build a relationship with each member of your board. You’ll learn valuable information in the process. I regularly call my board members on the telephone, meet them for lunch or cocktails, or invite them into the office for a meeting. By the time you get to the board meeting, all of your board members should be up to date with the affairs of the company, including any challenges, advice needed, business successes, etc. That’s the way you build consensus, and your board members will appreciate being kept ‘in the know’.
There are many advantages to consider in establishing a BoD as you build your business. But, the real advantage is investing your time and resources in a structure that will help and support you.
A BoD allows you the unique opportunity to look at your business objectively and from every angle. It encourages you to work on strategy instead of tactics. It allows time for you to develop new processes and protocols that might improve your enterprise.
My advice? Don’t underestimate the impact a BoD can have on your business!