Who should read this?
Startup and growth-stage founders/CEOs! Effective board governance is a necessary element in building shareholder value.
Where do founders tend to get stuck in building a board of directors?
Startup founders are often known to eschew oversight and governance, or at least make it a low priority. The realization that as a founder you could be fired for poor performance tends to scare one off governance. Or it can lead to appointing family members or close colleagues or friends who would never challenge the founder.
Why building a board matters
Young and growing companies are sometimes reluctant to build a full board of directors, or they make its formation a low priority.
So why bother?
For starters, in most jurisdictions, articles of incorporation require its creation. A board also plays an essential role in providing oversight of the strategic direction for the company and activities that impact shareholder value. Directors maintain a fiduciary duty to act in the best interest of all shareholders and to ensure that management remains aligned with that priority.
An effective board does more than evaluate the CEO’s performance. Board members are coaches and champions. Board members can be trusted advisors and confidantes. Boards have networks that can be leveraged to recruit employees and make introductions to potential customers and even investors. Boards will hold leadership accountable for subpar performance. You might be the founder/CEO, but they can terminate your employment if your leadership fails to fulfill expectations.
Founders have to make a mental transition from that of a salaried employee to thinking like a shareholder. As a founder, you have to put your ego aside, align your thinking with shareholders and ensure that you are fulfilling the objective of creating value and maximizing return for shareholders.
Tactics to get you building an effective board of directors:
- Put your ego aside.
- Think of yourself as a shareholder rather than an employee.
- Think and act in the best interest of all shareholders.
- Startup Boards: Getting the Most Out of Your Board of Directors, by Brad Feld & Mahindra Ramsinghani (2013)
- Building your board? Don’t build in mistakes
- How do you appropriately compensate board members?
- What’s the right board size and structure?
By Gregory Phipps