Constituting a great board means being able to lean on a trusted panel of non managerial yet experienced talent for advice and expertise your team doesn’t have - this usually comes in the form of a non-executive-director (NED).
These senior and experienced advisors are hugely valuable, especially as startups start to grapple with the relentless operational and strategic decision making that often leaves even experienced management feeling overwhelmed. It’s no coincidence that the smartest and best performing CEOs often have high performing boards.
Drawing up a shortlist of wish-list talent to fill your board seats may seem like an exciting and fun task. However, in practice, putting a really effective board together is hard work.
We’ve outlined the common pitfalls along with tips on how to get started.
What should a startup board do?
Startup boards should be able to provide help on specific challenges facing the company. Popular challenges and topics on which a board is consulted and particularly useful for include strategy, fundraising, budgeting, internationalisation, exits, commercial expansion, and org restructuring.
How does an effective startup board operate?
The key to being able to access the collective knowledge and potential of a board is in having a strong Chairman. They will orchestrate meetings, coach the management (the CEO), tease out insights from the other NED’s and encourage a variety of opinions whilst avoiding conflict.
Each NED adds demonstrable value to the company and its decision making. The board influence does not undermine the leadership and autonomy of the CEO.
The founder/CEO is cognisant of their potential to suppress different views due to company ownership power dynamics at play, and the strength of their vision. As a tonic, they will ideally have a Chairman that acts in a ‘coaching’ role, helping the CEO ‘grow’ as an executive, adapt their style and act as a sounding board for advice. They may even introduce third party coaches in some circumstances and will have the trust of the CEO in doing this.
The board is able to make tough decisions in reorganising itself when a change in circumstances requires such decision making. This almost invariably requires a strong and trusted Chairman.
There is some process in place to manage the board to some set of KPI’s.
What does a great NED look like?
Effectiveness at the board level requires a mix of functional competency and personal attributes. Great board hiring does not sacrifice on either piece. Great NED’s will have strong strategic decision making skills, solid judgement, and effective leadership. They will also score highly on authenticity, integrity, strength of character (gravitas and presence link to this), patience and maturity. It is often the latter, more personal attributes, that are sacrificed - these are arguably the most important attributes to screen for.
What criteria should I be evaluating a prospective NED on?
- How do they ‘fit’ with the other board members - what will the chemistry be like?
- Is this someone that I can work with? This may sound simple, but you must avoid candidates that introduce unnecessary friction.
- What is the strategic ambition of the business and does this candidate address this?
- What are the issues that concern the board and is this candidate able to positively contribute to discussion?
How do I evaluate a NED once they are on the board?
Once appointed, a NED should quickly focus on where they can add value and identify ways to influence at board level without causing friction. You do not want passengers on your board. Look out for positive impact and influencing skills.
A good NED will really want to get under the skin of a business, identify the issues that they want to address, rank those issues in order of priority, develop good relations with the executive team, and then take the time to learn the dynamics of the non-exec team whilst learning how best to influence around the board table in a tactful manner.
Experienced startup execs that are new to a NED role will need to quickly adapt to being in a hands-off role and taking time to understand challenges. This is particularly important if the candidate comes from an entrepreneurial environment where quick-fire decision making is often the case. They need to know which battles to fight, and leverage the power of well-judged, well-timed questions.
What pitfalls should I be mindful of?
Being a NED comes with a range of responsibilities and risks to the candidate. Candidates should be aware of this responsibility before agreeing to join as their reputation and financial situation will be at stake. This means the responsibility of the company to hire well is even more important.
Beware of startup execs who want to repeat what worked for them previously without understanding why it worked last time and what’s different this time around.
Directors who place too much emphasis on formality and governance aren’t a good fit for highly dynamic early stage businesses.
Hiring a board of directors is the formal way of constituting a board complete with legal and reputational responsibilities and risks. You get a committed and involved board that has genuine insight and contextualised input in your business. If, however, you are in need of more ad hoc strategic advice, consider leveraging your VC’s mentor network or constituting a less formal advisory board. This can often be much easier and less complicated.
However, you will need to consider the costs and benefits of these resources in line with the needs of your business. In particular, try to avoid taking advice free of context from someone who has no formal ties to your company, as they are unlikely to understand your challenges, motivations and aspirations. This kind of shoot-from-the-hip advice can at worst be damaging and at best distracting.