"Managing" Your Board of Directors

Allen Morgan wrote a good blog post for CEO's on how to manage their board of directors. You should read this if you are interested in such things, it's a playbook for how to create a functioning board and strengthen managements position at the same time.

I thought a complimentary piece would be directed at venture investors on how they should approach a board of directors either as a full director or a non-voting observer.

Before going any further I want to take a moment to clarify what I mean by "observer". What a board observer is not is a quiet person who sits off to the side during the board meeting. A board observer is a recognized position on the board, quite often it's a status that is dictated in the shareholder agreements or a side letter to the agreements stipulating that a specific investor is entitled to be informed of in advance and present at every official board meeting the company holds, and is entitled to have all of the material that is made available to every other director. A board observer is essentially a position that is the same as a director but without the vote that a director carries.

Back to the original post, a board of directors brings together a diverse group of participants, including management, investors, and outsiders with a singular purpose - to provide oversight to the company's CEO and to be an advisor to the CEO with the end goal of enhancing shareholder value for all shareholders. I've never actually seen a board that worked this cleanly or efficiently, but it's a good goal nonetheless.

Here's my take on investors and boards to build on Allen's post about mgmt and boards:

1. Every board has a collective personality, a new board member should spend the first couple of meetings doing more listening than talking to figure it out.
2. Be prepared for board meetings, read the provided material in advance.
3. If there are issues with the management of the company with regard to specific issues, consult with your fellow investors in advance of the board meeting in an effort to speak with a unified voice on that issue.
4. Know what the ties are that bind each investor to the others. For board meetings that I have to travel to, I make an effort to organize dinner with either the CEO or the other board members for the night before.
5. Don't ask questions just to make yourself look smart.
6. Bring best practice insight with you. For example, if one of your other companies has a better way of presenting sales pipeline, bring it as an example. But keep in mind rule #7...
7. It's management's role to run the company. The board manages the CEO, the CEO manages everything else. Keep that in mind.
8. A CEO that manages his/her board well will run a tight board meeting, respect the agenda. If the board discussions go on and on and on and are all over the place, work privately with the CEO to rein them in. But make no mistake about it, a well run board meeting results in a productive board meeting. Also, I don't think there are many cases where a board can't conclude all of the necessary business in 3 or 3.5 hours for almost all of the startups we deal with.
9. When bringing in outside directors have a clear understanding of what they are bringing to the table and how you want to utilize them. Remember that outside directors are getting compensation for being on the board, unlike venture investors.
10. For startups that have some maturity, form committees on the board for compensation, auditing, and so on. Delegating these responsibilities to board members results in efficient handling of detailed information on the subjects and ensures that someone on the board is equipped with the full extent of available information to be responsible for it.
11. Have an annual 360 degree performance review with the CEO and the board of directors. This is something that just isn't done as much as it should be.
    Also related to this is the notion that the board is always the last to know about poor management in the company, therefore it's incumbant on the board to move as quickly as possible to rectify this when it becomes apparent.

Link: "Managing" Your Board of Directors.

What the 10 rules listed below are aimed at doing is helping the CEO use the Board of Directors in a way that best helps the Company make progress -- not by hiding information (you'll see below John's advice on dealing with bad news), but by being aware that one's board of directors, like any group of human beings, can be organized in a way that is constructive -- or not.  Successful CEO's realize this and proactively try to get their boards to operate in a way that best helps the Company -- it will not come as a surprise to anyone that Boards don't necessarily self-organize into highly efficient, constructive, high-powered and helpful groups of advisors.