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Q: What is the best way to find the right people for your board of directors?
- Rhonda Davis
A: A balanced, qualified and engaged board of directors is one of a startup’s strongest assets, making the decision of who sits on your board a very important one. Board members provide strategic advice and lend credibility to a startup, particularly if the directors are well regarded in the startup’s area of business. They also expand your access to sources of funding and employee recruitment.
All these perks don't come free for entrepreneurs. Board members have considerable responsibilities and are granted rights, specifically, a fiduciary duty to the company and voting rights. These duties give them influence over long-term decisions about the company. For all of these reasons, it’s important to choose board members carefully.
So before you ask someone to join your board, here are some tips to help you make the right choice:
Understand how a board of directors works. A board of directors is elected by the stockholders of the enterprise and its fundamental duty is to oversee the management of the company. In most cases the day-to-day functioning of the business is entrusted to a group of executive officers that are recruited and retained by the board. Almost all material decisions affecting a business (i.e. those outside the ordinary course of business) are decided at the board level. Members also are generally compensated.
Keep in mind, the kind of board you need will depends on the type of startup, the stage of its maturity and the number of stockholders. As a practical matter, the board of a publicly-traded company requires very different expertise than the board of a venture-backed or self-funded business.
Use your network to find board members. Consider former academic and professional mentors, retired executives, and successful entrepreneurs who have expertise in your industry, or a business discipline, such as marketing or customer service, that is relevant to your startup. If you have investors, leverage their networks too.
Choose members that offset your weaknesses. Many founders are tempted to choose board members who possess the same skills set as their own. Don't do that. The best boards are those that bring strengths that are important to the company but aren’t possessed by the founders.
Ensure the board is a good fit with the startup’s culture. Boards can vary in character considerably. Some are dominated by a single person with outsized opinions, while others are consensus driven. The best approach for your startup is likely a function of the personality and skill set of the founders and early contributors.
Be prepared to make changes to accommodate the board. If you are putting together your first board, be ready for some changes. Boards are required to be diligent and to stay informed, which means they will want regularly scheduled meetings, frequent updates and financial statements. Also be prepared for boards to make decisions you may not agree with.
While having a board of directors can help an entrepreneur overcome many challenges and provide amazing insight, having one isn't for every startup. If you decide you don’t need the level of involvement that comes with a board of directors, consider establishing an advisory board. Advisory boards can provide much of the same strategic advice as directors, but they don’t have a fiduciary duty to the company or voting rights, so the arrangement is much more informal and ensures you still have total control over high-level decisions.
As an attorney at firm WilmerHale, Peter Buckland focuses his practice on the representation of companies, from start-ups to established corporations, with particular emphasis on software, internet and digital media, devices, energy and clean technologies. Since joining the firm in 2005, Mr. Buckland has counseled numerous entrepreneurs and emerging companies throughout their lifecycle and has advised on complex corporate transactions, including venture capital financings, mergers and acquisitions, public offerings and buyouts.