Is there a checklist to manage board activities?
- Most board chairs have a list of all the things to complete over the course of a year, including strategic meetings, annual operating related aspects, and the CEO review. It’s a long list and you have to be mindful of activities between the whole board and committees (see committee charters).
To ensure you go through the whole list, divide the tasks into incremental chunks of four to six board meetings in the year. Some of those activities are assigned to committees. Create a model where each board meeting has a specific agenda and goal.
- For example, the February meeting is around sales and go-to-market. The June meeting is three days of strategy work and portfolio review, or the September meeting is the first pass at the annual operating plan.
How is the independent director role different for private and public companies?
For a typical venture-funded company in Silicon Valley, oftentimes there’s a syndicate of investors. This means more than one venture capital firm. The VC are preferred shareholders. Commonly, there’s an independent director. Sometimes you might have a more specific constituency, or represent a certain class of shareholders, say common shareholders. Those shareholders might have the right to nominate a director and you have a special duty to them.
The independent director role requires art because you serve at the pleasure of the investors. They could fire you at any time. Despite that, be as independent as possible and have an independent mindset.
- Oftentimes in a syndicate, there may not be harmony. There might be dysfunction, especially if things are going poorly. That’s when the independent director can play a significant role to prevent the company from getting destroyed. When there are disputes among the investors, the independent director has a special relationship with the CEO and the common shareholders, i.e., the employees. The special duty is to make sure that the common shareholders have a voice in recapitalizations and additional financing.
- When the company is owned by a private equity firm, the board consists of the partners at the equity firms. The board might have one independent director. You serve at the pleasure of the owners. The most sophisticated investors know they are investors and not operators. They want to hear insights from independent directors who have operated companies, not just managed other people’s money.
What is expected of independent directors on venture-backed companies?
- It varies depending on the stage of the company. For early-stage companies, the independent director mentors and coaches the young CEO. The VC is the investor and board member and is contractually obligated to the investment. The CEO needs another voice at the table that they can rely on.
If the company is a very early startup, the founder may have limited experience working with a board or working with VCs and may need someone with whom to talk and collaborate. The role includes mentoring a first time CEO and helping that person mature and deal with his or her investors.
- For late-stage companies, the independent director role is preparation for going public. The independent directors fill certain slots for committee positions or can be a good base for the long-term health of the board. VCs are planning their transition off the board over the next two or three years.
What is the relationship between the board chair and the chair of the governance committee?
- The Nominating and Governance (NomGov) Committee’s role is to establish the governance rules, processes, and monitor the board. Because you have three people on the NomGov Committee, and your board has 6-8 independent board members, the board chair’s role is to ensure all board members are actively engaged and contributing.
One of the areas where the board chair and the NomGov chair work closely together is to promote good board dynamic. If there are issues such as a disruptive or non-performing board member, that gets sensitive. The board chair and NomGov chair coordinate who can best deliver the message.
