Working with Your Board of Directors
One of the things that comes with an investment is almost always the creation of an active board of directors to which the investor is elected.
The reactions of first-entrepreneurs range from,
The first time you do this youÕll probably have a bit of each running through your head.
Your board should be a tremendous asset to you and your
company. LetÕs be honest, youÕre probably doing a lot of Òbusiness thingsÓ for
the first time. For high growth rate companies, the cost of tuition for
on-the-job training is likely to be too high. The company canÕt wait for you to learn your job as CEO by
trial and error. Decisions need to
be made. Strategies need to be formulated. Key management additions need to be
recruited. The next round of capital needs to be raised. Oh, yeah, youÕve got a
business to run and you may be doing that for the first time, too.
The legal role of the board is to look out for the interests
of ALL shareholders. Even if you
own a majority of the stock, your board cannot and will not just rubber-stamp
your requests. Each board member has a fiduciary responsibility, and liability,
for assuming this role.
Among other things, the board does hire and fire key
management, including (or especially) the CEO.
Your company is going to come to lots of intersections on
the road to its success. Sometimes the path you choose will be irreversible,
and if itÕs the wrong one, your company will falter, and perhaps fail.
If selected and used properly, your board members, drawing
upon their expertise, contacts, and experience, can help you avoid fatal steps
and make the proper decisions. [Note: I originally wrote Òright decisions,Ó but
there are no Òright decisions,Ó only best decisions appropriate to the current
circumstances.]
Your board meetings will provide forums to review these
issues, share experiences, discuss and evaluate the alternatives, and come to
appropriate conclusions.
Another key role for the board is to anticipate future
issues and prepare for them. As
noted in the opening of this article, you are probably doing this for the first
time. YouÕre having enough of a
challenge dealing with the here and now. You have neither the experience nor
time to give a whole lot of thought to future issues.
ThatÕs where your board comes in. They can anticipate the
type of financing you are likely to need in the future and begin the process of
introducing appropriate investors to the company. They can see the trajectory
of the companyÕs progress in product development, sales, business development,
and anticipate the areas that do, or will, need bolstering.
One of things that continues to surprise me is that many
board meetings that I have participated in or observed, have been largely a
waste of time.
Board meeting are not for information exchange. You need to prepare and distribute a
board pack (a collection of reports, charts, graphs, narratives that informs
and educates the board members on what the company has done since the last
meeting).
YOU SHOULD NOT REHASH THE CONTENTS OF THE BOARD PACK. If you
got it to the board members with sufficient time for them to review it, assume
that they have done so. Treat them with the respect that reflects your regard
for their professionalism (by being prepared), and sensitivity to the
importance of their valuable time. [Note: if one board member is not prepared,
the others are, and the lack of preparation is obvious, it wonÕt happen a
second time.]
Board meetings should not contain surprises. In my
experience, first-time entrepreneurs often assume an Òostrich postureÓ with
regard to problems: they bury their heads and hope the problem will go
away. It wonÕt.
If thereÕs a possibility that a problem of board
significance may arise, tell your board members as soon as you get any inkling
that it may actually happen.
Whenever thereÕs a significant surprise, good or bad, anticipated or
not, tell your board.
ÒI canÕt do that,Ó you may be thinking. ÒThe board will
question my ability as CEO.Ó No, they wonÕt. They will think that you are a
sophisticated CEO, confident in your own abilities, and that you are wise to
keep them informed about important issues, and to seek their counsel when
appropriate.
Board meetings should be important forums in which critical
issues for the company are discussed and decisions made. They often arenÕt.
Here are a few of the common mistakes, IÕve seen and, on rare occasions,
contributed to.
I canÕt count the number of times that board meetings start
off with a series of trivial subjects, so that Òwe can get them out of the
way.Ó More often than not, these Òlittle thingsÓ consume the bulk of the
meetingÕs time, and important things arenÕt addressed, or at least not
adequately.
This is not to say that important ÒhousekeepingÓ items
shouldnÕt be dispensed with at the beginning of a board meeting. Assuming that you have distributed the
material in advance, calling for the approval of the prior meetingÕs minutes;
approval of corporate resolutions that had been discussed previously, and put
into legal form between meetings; approval of stock option grants that the
board authorized you to offer to a prospective employee; and other similar
things do need to be taken care of and can be dispensed with in a matter of a
few minutes.
It is important to share the cash position of the company
and how the company is performing against plan with the board. These can often
be handled with two summary graphs or charts. If things are generally, ÒOK,Ó
move on.
Too often the detailed financial statements are the focus of
this discussion, and all of a sudden 30 minutes have gone by talking about things
like, ÒGee, your phone expense looks high. What carrier are you using? É Well, weÕre using ABC Phone
Company and we got such a deal! You should check it out.Ó
ThatÕs not what a board should be doing.
If youÕve selected the right board members, they are very
busy people with many demands placed upon their time. If your board meeting is scheduled to last two hours, thatÕs
what they have allotted for it.
They will need to leave at that time, and you are showing disrespect if
you donÕt cover everything that you need to and/or try to get them to stay
longer.
Set an agenda, including time benchmarks, and stick to it.
The reason that the members of your board have joined is
because they want to help your business and believe that they can make
contributions to it. Yet, many
board meetings end with everyone having had a pleasant time, lots of
information and experiences exchanged, but nothing substantive has occurred.
You should always have one or two substantive topics on your
agenda. ItÕs often a good idea to
have an advance schedule of functional departmental reviews over the course of
a year, normally one per meeting.
Sequencing through areas like sales, marketing, engineering,
and operations, permits considered reviews of:
Make sure you ask your board for their assistance in key
areas and you will be surprised by what they can contribute.
Frank Demmler is Associate Teaching
Professor of Entrepreneurship at the Donald H. Jones Center for
Entrepreneurship at the Tepper School of Business at Carnegie Mellon
University. (Website)
Previously he was president & CEO of the Future Fund, general partner of
the Pittsburgh Seed Fund, co-founder & investment advisor to the Western
Pennsylvania Adventure Capital Fund, as well as vice president, venture
development, for The Enterprise Corporation of Pittsburgh.