Recently, we’ve seen an uptick in board-level mandates at both corporate and high-growth startups, so let’s look at the different needs across various stages of development.
Boards come in many shapes and sizes, and each are tailored to the unique needs of the company, the development and needs of which will inevitably define the composition of directors.
STRUCTURE AND ROLE
The mature corporate…
In essence, a board exists to supervise the company’s activities, provide governance, and evaluate performance. The main responsibilities include hiring (and, if necessary, firing) senior executives, and outlining policies on dividends, options, and executive compensation. They will also help set broad goals and support the executive team’s responsibilities. Crucially, however, the board won’t usually be involved in day-to-day operations.
A board can be any size, and how many directors are present will often depend on the size of the company. However, boards usually have at least three directors, and sometimes as many as 12 members; eight to ten members is common
The high-growth startup
For startups there is less to govern or control, so the role of board members is far more fluid. In contrast to management, where they oversee day-to-day business operations, the board of directors affect startup annual operational plans and strategic direction, review progress, and make adjustments. They also oversee financials and develop strategies for hiring – particularly regarding the CEO and founders. Essentially, there is more pressure on a startup’s board members as more is at stake. It is therefore imperative that startup boards include a wealth of experience and skillsets.
To define optimal startup board structure, I agree with board-room.org’s rule of thumb for members, which (depending on stage) consists of the CEO, a VC representative or financial investor, and two or three CEOs of successful peer companies. In any case, it’s important for the chairperson to be a non-executive director (NED), as opposed to an executive director employed by the company, to avoid conflicts of interest. Furthermore, in order to keep an objective view, it’s a good idea for independent outsiders to comprise the majority of board members.
COMPOSITION AND EXPERTISE
Deloitte states that diversity in governance boosts creativity and innovation by at least 20%.
The high-growth startup will require experience and expertise. CEOs must seek those who can bring operational know-how, networks in your market and they should complement the VC.
They should be responsive – startups are often fast-paced environments – and go beyond meetings by, for example, introducing potential partners, offering coaching leadership, collaboration on speaking events, assistance with assessing candidates, and so on.
Meanwhile, the mature corporate may benefit from increasing diversity at board level, if applicable. As established companies, these are more likely to gain from fresh perspectives. Deloitte reports that diversity in governance boosts creativity and innovation by at least 20%.
Diversity can take many forms, with gender and race frequent topics of discussion at board level. It is worth noting, also, that cognitive diversity – that is, welcoming directors with different backgrounds, experience, and ways of thinking – is also important for corporate governance. You might want to think about prospective board members in terms of ‘culture add’ (i.e., what a prospective director can contribute) rather than culture fit (that is, if they are similar in profile to current directors).
ATTRIBUTES
While trustworthiness remains a non-negotiable attribute for board members across all company stages, other qualities may vary to suit the unique needs of startups versus established firms.
In the startup arena, board directors are often characterised by their willingness to take calculated risks and navigate uncertainty with courage. They operate with minimal formalities, relying on individual initiative and agility to make decisions amidst ambiguity.
On the other hand, directors serving on established company boards are generally valued for their unwavering commitment and dedication. As companies mature, adherence to structured processes and protocols becomes paramount, requiring directors to invest significant time and effort into their governance responsibilities. Effective teamwork and streamlined communication are vital for maximizing board productivity and cohesion.
Recognising the distinctions between startup and established company boards is essential for assembling a board that can effectively support the company's growth trajectory.