This blog draws upon several papers written about building high performing boards along with my own observations from many years spent supporting board creation and development for a wide variety of SMEs and charities.
This blog offers advice to startup founders and CEOs of scaling SMEs but may also resonate with more established businesses pursuing turnaround, transformation or growth strategies.
1. First Things First – What is a Board?
For the purposes of this blog, I am not going to reference the governance requirements set out in the Companies Act or the UK Corporate Governance Code. I am more concerned with board performance and the value-adding potential of a board.
At early startup stage, a board will likely consist of the founder or co-founders and perhaps one or more board advisors (an advisory board). If a startup is successful in raising money, then that board will formalise (a board of directors), appoint non-executive directors, expand and continually evolve as the businesses grows.
The basic purpose of a board is to be responsible for making a company’s most critical structural, financial and directional decisions.
2. View your Board as a Strategic Asset
The external perspective provided by a well-functioning board helps CEOs see the bigger picture, forcing them to think beyond day-to-day operational issues and discover blind spots.
Board advisors for startups will provide tactical support such as financial or functional expertise to help shape strategy or access to potential customer contacts and partners.
A recurring sentiment is that a strong board is not your enemy – it is there to help you thrive. A far greater risk, proven to be a flawed strategy for all stakeholders, is having a board composed of ‘yes’ directors who agree to everything you say.
A good board will guide your business through uncertainty and think creatively about the future. It will create and protect business value.
3. Clearly Define the Role of the Board
The board’s key purpose “is to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders” (Standards for the Board, IoD).
To be able to fulfil its key purpose objectively, the board should have independent, non-executive directors. It should not be just the executive team or just the shareholders, because the board must judge, on a case-by-case basis, which stakeholders it treats as relevant and which of their interests it is appropriate to meet, taking into account the law, relevant regulations and commercial considerations.
The board’s role is to be:
- Simultaneously entrepreneurial and drive the business forward while keeping it under prudent control.
- Sufficiently knowledgeable about the workings of the company to be answerable for its actions, yet able to stand back from the day-to-day management of the company and retain an objective, longer-term view.
- Sensitive to the pressures of short-term issues and yet take account of broader, long-term trends.
- Knowledgeable about ‘local’ issues and yet be aware of potential or actual wider competitive influences.
- Focused on the commercial needs of its business while acting responsibly towards its employees, business partners and society as a whole.
Each board member is expected to recognise these challenges and ensure that they personally contribute to finding the right balance between these various competing pressures.
4. Board Composition – Don’t Accept Second Best
To help set the right tone from the top, find a senior, experienced chair who’s been there before. Selecting a chair based on non-board work experience alone is a grave mistake — and one that happens far too often. The person you choose should have at least 5 to 10 years of experience working on a board and must be able to effectively manage diverse stakeholder interests internally as well as externally to the company (ie board members, employees, investors, regulators, bankers), deftly broker solutions, and negotiate with confidence and skill.
The chair should also play the role of CEO coach — someone who can mentor, redirect by suggesting corrective actions, assist in hiring, work on M&A, liaise with bankers, align investors around fundraising and exit, etc. They should be someone who can augment the management team and make them perform at a higher level.
This guiding role is a critical function, so the chair and CEO should never be one and the same.
Size of Board
Startup founders should seek to assemble a tactical advisory board that meets the short-term objective of establishing a well-funded, commercially sustainable business and a platform for scaling up. The composition of the advisory board, and its size, will reflect the knowledge and expertise gaps of the founders. I have helped founders assemble advisory boards of between 2 and 8 members, and members have been rotated as and when needs demand.
The board of a business that is past the initial startup stage, perhaps having gone through seed and series A funding, would typically have five members, three of whom would be non-executive directors. A pre-IPO business might have a larger board (up to 7 members).
It is important to control the size of your board to ensure diversity of views while retaining discipline, focus, engagement, and commitment.
Look Beyond Investors
It is important to remember that investor syndication does not equal board composition, so avoid automatically giving a board seat to all of your investors. This happens far too often, as each share class asks for board representation to look after their own specific interests and agenda.
Your board should represent your market, both the current phase of your business as well as your strategic aspirations. In many cases, there are people better suited for this than your investors.
Avoid Big Egos
Those with the biggest reputations do not always deliver, so make sure they care about your business as much as they do about their ego.
Avoid people who actively put themselves forward for board positions. These people are likely more interested in their own goals than in the goals and interests of your company.
Focus on competencies, not titles.
Make your board work for you. Get tactical about your appointments to ensure the right board members are there at the right time. There is nothing wrong making appointments for specific needs like breaking into new key customers. Make sure all your board members add value.
Diversity brings different perspectives to your board, allowing the board to consider a broader range of experiences, both professional and personal, when guiding and challenging your executive team. Combining board members whose different backgrounds and experiences are varied and wide-ranging results in better conversations, more innovation and creative problem solving.
Invest in Onboarding
Effective onboarding is important to ensure an appointed non-executive director adds value quickly and effectively. Getting them to understand what is important to you, the culture of your company, and the way your company works is vital for their contribution, no matter what talents they have in other fields.
5. Board Effectiveness – Make your Board Work for You
Making your board work for you is an ongoing process and is not achieved simply by assembling the right team, although it will be impossible without one. High performing boards are built on trust, transparency, clear expectations, meaningful meetings, performance management and regular board effectiveness reviews.
Every board, whether for a startup or an established business, has untapped potential. It should be on a journey of continuous improvement and should embrace regular board evaluation.
The Experience Bank Group has developed a framework and methodology for reviewing board effectiveness based on the following 5 fundamentals:
By optimising each of the 5 fundamentals you can build a better board, make better decisions and attain better outcomes.
Building and maintaining a high performing board requires an ongoing investment of time and money but will provide a huge ROI.
I recently read a piece by Bo Ilsoe (partner at ngp capital, a $1.2B growth stage investor in the likes of deliveroo) in which I think he validates the point persuasively:
“With nearly 30 years of experience in both operations and investing, I may have developed a few grey hairs, but I’ve also learned a thing or two about what an effective, well-run board looks like. I’ve gleaned most of this hard-earned knowledge from witnessing what not to do — too many boards are poorly organised, with investor syndication woes and an imbalanced composition of members.
Building a board is incredibly challenging, yet getting it right is critical to setting the tone for success from the start, elevating a burgeoning start-up to the next level and meeting the long-term needs of a rapidly growing business.” Bo Ilsoe, ngp capital, 2017
If this blog has stimulated some thoughts on your board and whether it is adding the value it should be, we are always happy to listen, understand and help.
If you disagree with anything I have written or can add something that I have missed that may be valuable to readers, please do comment below.
In addition to presenting my own opinions and observations, this blog also draws on material from the following papers that I have judged to be relevant and valuable:
Institute of Directors, 2018 ‘What is the role of the board?’ iod.com
Shepherd, A 2019 ‘How to build a diverse board’ TechCrunch.com
Cummings, O 2019 ‘Building a brilliant start-up board’ Nurole.com
Ilsoe, B 2017 ‘8 steps to building a strong board of directors’ Venturebeat.com
Benigson, M 2021 ‘Boards of the future: why the board of the future should be the board of today – and how to build it’ thembsgroup.co.uk
Muir, I 2017 ‘Why boards can fail’ LinkedIn.com