How to structure a FUNCTIONAL Board ?

Do you feel excited about the upcoming board meeting? Do you feel that the hours spent with your Board members are worth more than the money they invested? Do you ever wish that if it was possible to hire those Board members as part of your team? Or

Are you one of those founders who think Board meetings are a complete waste of time? Do you wish that the frequency of Board meetings should be changed from monthly to quarterly? 

Clearly, if the Boards are not functional and productive, it can have deep impact on the future of Startups. There is an old Silicon Valley saying that “Good boards don’t create good companies, but a bad board will kill a company every time.”

How to structure an awesome, effective and productive Board?

1. Right People - Choose your bosses wisely

As the CEO, you report to the Board. They assess your performance and decide on key matters of your company. Would you let investors appoint anyone as your boss? You need to "know" the investor representatives who would be appointed on your board even before you sign the term sheet. Spend time with them and if the investor director nominee is not as excited as you about your business, look for replacement. You should also consider diversity of skill sets on the Board. Checking references is also very important. First impressions can deceive. 

2. Size of the Board - Small is beautiful

One of the Board meeting that I attended last month had seven people in the room excluding key management of the Company. Harder to have deeper and meaningful discussions in a larger setting. 

Monthly Board meetings are a time when you get out of your day to day execution mode, take deep breaths and think strategically using directors as your sounding board. The smaller the group, the better the discussion quality. 

Ideal size of the Board at seed stage is three and Series A is five (including founders).

3. Board observers - Try to minimise

Lets be practical, in a meeting, observers don't just observe. They pretty much act as a Board member. They have views, ideas, questions, etc. and it is rude to tell someone that they are there just to observe. Founders should try to minimise the number of observer rights they assign to every investor in the syndicate. 

It does not mean information can not be shared. Board materials, discussion minutes, etc can be shared with everyone who holds a reasonable stake and confidentiality is assured.

4. Chemistry between members - critical

Culture at the Board level is critical. The chemistry and respect among board members for each other defines the overall quality of the meeting and outcomes. This does not mean that all the members have to agree to everything that has been shown or said. Diversity of views should be encouraged. Open and frank conversations are key. Founders have to play a key part in building this culture even at the board level.

One loose canon on the Board can destroy the entire team spirit and that affects functioning of the Board. Founders need to know how to handle critical observations and encourage data backed debates. Stay away from the five types of dysfunctional board members as defined by Jack and Suzy Welch: The Do-Nothing; The White Flag (will do anything to avoid confrontation); The Cabalist (driven by personal agenda); The Meddler (dwells incessantly on details); and The Pontificator (only enjoys hearing himself speak).

5. Advisers are not Directors - understand the difference

Investor Directors are shareholder representatives. They are mostly generalists and rarely specialists. 

If you need specialised advice on something on an ongoing basis, you need to assemble a separate Board of Advisers. However, it is not necessary to have advisers appointed to the Board. 

6. Independent Directors - worth having one

Independent Directors are great to bring balance to a Board. In cases, where there are deadlocks between Founders and Investors at a Board level, an experienced third party can help. 

Very few startups like to get Independent directors involved and most ID seats are generally unfilled. 

7. Frequency of meeting - communication is important

Better Boards meet monthly and communicates more frequently than that. Startups operate in a very dynamic environment where traditional quarterly meetings are useless. 

Besides meeting in person on a monthly basis, real time communication and decision making on key issues is important to build trust and transparency. 

8. Split Board meetings into two sessions and involve key management

In a healthy board-CEO relationship, the board and CEO need quality time together where they can have private discussions.  A customary approach that works well is to divide board meetings into 2 sessions:  First there is an open session, where senior management team members may be invited and they may even be responsible for parts of the agenda. Then there is a private session where everyone except for directors is excused and the agenda shifts to the private Board-CEO discussion and governance matters.