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How do I build and manage a Board of Directors?

Answered by: Paul Maeder

The Board of Directors is the legal protectorate of the interests of all of the company's employees, customers, suppliers, creditors and shareholders. From a governance standpoint, the board is the CEO's direct supervisor and closest advisor. But a good, working board can also be a huge competitive weapon. It should be where the CEO turns when he or she is out of answers. Good directors are knowledgeable, calm advisors. Calm is important since panic and more stress are the last things you need in a crisis. Being calm in a tough spot comes from both experience and disposition. In considering Board members, the CEO should consider both of these attributes.

Small boards are more effective than large ones. Start-ups suffer many disadvantages to larger competitors. Their principal advantage is agility. A cumbersome board can severely impair agility. A small working board can turbocharge it.

The Board of Directors should not be comprised of members of the management team, blood or marital relatives, service providers such as company counsel, or luminaries. Doing a thoughtful job of building a capable, helpful, compatible board is a key indicator of the thoughtfulness which the CEO brings to the company building process.

In our experience, the ideal Board composition includes the CEO, the Founder (if he or she is not currently the CEO), two experienced outside directors with in depth knowledge of the industry, and no more than two venture capitalists.

Outside board members should be compensated and they should be compensated equally. Options are better than cash, particularly before the company becomes profitable. If you aren't enthusiastic about compensating someone well to join your board, then they probably aren't the right director for you. Think about a range of 0.1% to .25% of the company, depending on company scale - perhaps more at very early stages.

Board members should receive a mailing at least 48 hours before the meeting. This package should include a proposed agenda, minutes from the previous meeting, key financial performance measures, and resolutions to be voted. Perhaps most importantly, this package should contain one page write-ups by each operating manager and the CEO describing key accomplishments since the last meeting, and important challenges and goals facing the company.

Meetings should last two to three hours, begin and end on time, and be run efficiently while still allowing for drill down discussions on important topics. Management members should be invited to present and when appropriate attend segments of the meeting. However the bulk of the board meeting should consist of board members only, hence the term "board meeting."

Some boards meet monthly, some every other month, some quarterly. As a rule, the boards of younger companies meet more frequently since they require more board help. Typically at least half the board's contribution to the company's success comes from activities outside the board meetings: phone conversations and breakfasts with the CEO, interviews with candidates for key management positions, calls to wary prospective customers, and so on.

Like so many other things, a CEO gets out of a board only what he or she puts in. A board kept in the dark or on the periphery of the company's growth can only be a drain on the CEO's schedule. An informed, involved board can be a huge asset to the success of both the company and the CEO's career.