Board Games: The Basics On Picking Your Dream Team Of Directors
As an advocate of good corporate governance and having structured boards for many entrepreneurs in Dubai, here is a step-by-step guide to building a board for your startup.
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You have a startup, you are about to raise funding, and now you have been told that you need a board of directors to ensure that you have sound corporate governance. As an advocate of good corporate governance and having structured boards for many entrepreneurs in Dubai, here is a step-by-step guide to building a board for your startup.
Do I need a board of directors?
You need a board of directors. Your board is appointed to represent the interests of the shareholders and if you are raising funding, a prudent investor will demand a seat at the board level. If you structure your board with value in mind, you should have access to a diversified group of experts that guide through your journey of building the business.
When do I need a board?
The structure your board of directors should be a core part of your business planning process. From the outset, you should think about the ideal size, diversity and independency of your board. The way in which you structure your board can echo some of the values and business aims of your venture. An odd number of directors is commonplace and we recommend five as a minimum; so plan on filling the seats as you get closer to launching the business.
Who should sit on the board?
This is the hardest part of the exercise. In AQ&P, we use a framework to assess the effectiveness of a board- with three of the five tenets focused on structure. They are proportionality, independency and diversity.
Proportionality encourages a high percentage of non-executive directors [those that do not have a day to day role operating the business] and the separation of roles between the board of directors and the CEO. This is the most basic form of checks and balances in building an effective board.
Independency is key to good corporate governance, so if you fill your five seats with investors and founders, you lack an objective viewpoint that independent directors bring to the table. We encourage startups to have 80% of the board as independent directors. In addition, your corporate governance playbook should have a disclosure process for conflicts of interest.
Diversity is something we advocate for with passion. Gender balance and a diverse group of skillsets can make or break the corporate governance effectiveness of a business. The world's biggest businesses ensure that diversity is a key value in their corporate governance playbook.
How do I remunerate the board?
Remunerating the board is important, especially with independent directors. Not only does it incentivise them to deliver, but paying an independent director can be more cost effective than hiring a team of consultants to support your strategic goals. How much you ask? Think of the size of your business, the time invested and benchmark your peers- it is that simple.
At AQ&P, we coach businesses on building an effective board and encourage a comprehensive feedback process to ensure that your directors are delivering what you need. If you have decided to improve your corporate governance practices and don't know where to start, seek advice or ask other founders if they would be interested in a board seat; you would be surprised at the value that can bring to your startup. Your all-star picks could be the entrepreneurs down the street.
Related: Three Reasons Why Your Startup Needs A Corporate Governance Playbook