Hiring the Right Board Members
31st January 2012 · 0 Comments
Last week brought a discussion with an entrepreneur about whether a particular person would be a good board member for his company. He thought not, but I tried to correct his perception. I have served on many private and some public company boards, including a couple of banks, and have seen many different styles in action. Here are some of my thoughts as to characteristics you want in your board members:
1. Cheerleading – It is great to have a director who is always willing to help promote your company to customers, partners, potential employees, and investors. Someone who is not afraid to open the Rolodex (dated term, I know) and flog it on your behalf can be a great asset. I’ve often thought about giving my directors sales quotas; the best boards become part of your outreach team and should be managed as such.
2. Critical thinking – On the other hand, you don’t want your board to drink your Kool-Aid with such enthusiasm that they are incapable of critical thinking about what you report to them. I don’t mean criticism per se, but I do mean the ability to ask incisive questions based on their experiences and to help you see where you may be going astray in your plans. It’s easy for you as the entrepreneur to get lost in the day-to-day pressures and to lose sight of the bigger picture. Having some more detached input, particularly when it’s creative and positive, can be a real benefit.
3. Domain knowledge or more general wisdom – Either of these can be beneficial. If you are in a highly technical business, say fabless chip design, having someone who can grasp the technical nuances and, perhaps more important, who knows the players in the industry, can be a huge resource for you. However, in some locales those types of individuals may be hard to find, and you can still benefit from generalists. The human resource dramas and basic financial challenges of early stage companies aren’t particularly dependent on the specifics of the business.
4. Sensitivity – It’s great to have someone who’s been in your shoes as an operating entrepreneur and who understands how you tick. I’ve seen some grinders on boards, particularly young MBA analyst types coming along as part of the package when you take in dollars from a very large VC firm with layers of associates. You don’t want your board meeting to devolve into calculator sessions where every number you report is second guessed or requires some clarification. Hopefully those analysts are accompanied by more senior partners who understand what’s appropriate for a board meeting and what’s best handled offline.
5. Lack of conflicts - There’s an inherent conflict when a venture investor holds a board seat and the company is ready to raise its next round of financing. On the one hand, that investor wants the best deal possible for his own fund; on the other it’s better in the long run for the valuation to keep increasing. You will do well to attract investors who are professionals at their game and can keep these conflicts in check. I’ve even seen board members who get more concerned about protecting their investor buddies from the country club than doing what’s best for the company as whole. This is especially dangerous when you have a mix of individual seed investors followed by a more powerful and deep-pocketed VC round. Board members server at the pleasure of the shareholders and are obliged to look out for them all, but when the company absolutely has to have money to proceed, tough decisions have to be made, and conflicts have to be managed.
6. Skin in the game – You should seek board members whose interests are aligned with the company’s by virtue of having some significant equity upside or by being an outright cash investor. Board members who serve only for fees or resume building rarely give you the share of mind that you really require.
7. Stamina – It’s important for a board member to have the stamina to stay the course during the ups and downs of your company’s development and to hold on to the institutional memory as you have changes in your management team. It’s even better when that stamina is accompanied by dry powder for successive financing rounds. Having a board member who has folded somewhere along the way means you have someone who is only there trying to protect an earlier investment and who is particularly subject to the aforementioned conflicts.
6. Collegiality – Having board members who get along with each other is critical. I’ve formed some close bonds with fellow directors in many situations over the years. We’ve had to have many discussions outside the boardroom environment and even sometimes had to make management changes or take on operating roles beyond the normal call in order to get companies out of the ditch.
7. Work ethic – You go to a lot of trouble to prepare for a board meeting. You’re forced to get the facts and numbers up to date and to create useful reports for people who are outside the normal day-to-day flow. These efforts may or may not be of much value in your own management activities, but you have to do the work in order to get your directors up to speed for each monthly or perhaps quarterly gathering so you’ll get meaningful advice from them. It’s darn nice when the directors actually do their homework before the meeting and come prepared to accomplish something rather than sit through recitations of charts already provided to them.
8. Good match – If you had the luxury of choosing investors up front and having a say as to who joined your board, then that’s the time you should have conducted the interview and reference checks to be sure you’re getting directors who align with your style and are likely to be most helpful to your company. If you didn’t have much negotiating leverage on this point, then you may have to make the extra effort to establish rapport with particular individuals.
I could add to this list, and you are welcome to do so. I could also recite many interesting stories from my boards over the years. I recall one investment that went sour almost solely because the VC representative clashed with the CEO; the ultimately solution was the VC firm taking a loss on is position so management could do what it wanted it do. There were two sides to the story, but I always thought that loss could have been avoided. Then there was the time when Bain Capital invested in one of our Cordova portfolio companies. I was not assigned to that board, fortunately. I don’t know if the Bain work ethic originated with Mitt Romney, as this was long after his tenure there, but the Bain board members insisted on flying in late the night before a meeting and then convening at 6:00 AM so as not to lose any time in traffic. Talk about stamina.
I’ll save the rest of the stories for my book. Time now to get ready for some board work.
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