Forming a Board of Directors for your startup will help your speed to scale, and help you avoid pitfalls that you might miss

A classmate from graduate school called me up years ago and said, “Brenda, I don’t know about you, but suddenly I seem to have all these people who ask for my opinion. Does that mean I have reached a mature age?“

Forming a Board of Directors for your startup will help your speed to scale, and help you avoid pitfalls that you might miss

A classmate from graduate school called me up years ago and said, “Brenda, I don’t know about you, but suddenly I seem to have all these people who ask for my opinion. Does that mean I have reached a mature age?“

We had a good laugh, and I ultimately agreed with her. Pointing out that since she was technically calling for my advice, apparently I was of a mature age too, and I had the requisite “silver hair” to prove it.  My business school classmate (we both went to University of Chicago Booth) then went on to share an opportunity to interview for an audit chair position for a public company board in the pharmaceutical space. She thought I would be a great candidate for the position, considering my prior work as an auditor, controller, and my experience in the pharmaceutical industry.

My interviews went well, and at the next shareholder meeting, my appointment was confirmed; beginning my long journey as a board director.

My passion is serving on the board of companies run by digital natives- Gen X and Gen Z entrepreneurs. Most have never been in a corporate job; they have never hired, fired, filed for a patent, or written a business plan. All things that I have experienced in a number of ways, a number of times, with a number of different businesses. I love working with entrepreneurs because they have the passion, energy, and drive to solve big problems, and as a board member, I can help them get there faster.

Simply put, entrepreneurs need wisdom from independent thinkers who have more experience than they do because they don’t know what they don’t know. That is where board members with “silver hair” can step in and be their silver bullet.

Before you can dive into the five steps in setting up your own board of directors, let’s first dip our toe into the water and understand what a corporate board is.

What is a corporate board?

Corporate boards are fiduciaries of a company, meaning that they have the company’s best interests at all times. In other words, a fiduciary is legally bound to put the company’s best interests ahead of their own. Corporate Boards are a group of individuals with a fiduciary responsibility in representing the shares of different stakeholders. On a board, you have many members, independents, the CEO, executive directors, and others who own shares. When a VC comes in, they typically ask for a board seat. When you are an independent board director, your responsibility is to represent the minority shareholders. Board member decision making is like a team sport, with votes representing the positions, and the sum of the decisions made by the whole board are greater than the individuals by  seeking returns for shareholders through a  sustainable business model and doing the right things for the right reasons. This is the type of board that I enjoy the most.

A Board of directors has three oversight functions

  1. Hiring /firing the CEO
  2. Ensuring the financial reporting complies with current legal and financial regulations
  3. Providing guidance/oversight on the strategy and capital allocation to deliver on the strategy of the company

Professor Charles M. Elson director of the Weinberg Center, the Edgar S. Woolard Jr. Chair in Corporate Governance and professor of finance at University of Delaware , at a NACD certification program explains why board members are legally obligated to act on behalf of an organization’s shareholders to ensure that the company is properly managed.

 Board members go about their functions guided by three disciplines:

  1. Duty of loyalty – thou shalt not steal
  2. Duty of care – thou shalt be careful
  3. Duty of good faith – thou shall not lie

5 Crucial Steps to Board Formation

Now that you know the basics of what a corporate board is and what it does, let’s look at five early actions you can do to enable your team to scale in a fast-paced environment, show business acumen, and provide safety assurance around “the moat” protecting the enterprises’ assets. Follow these steps and you will be well on your way to attracting a board of directors that will help you forge the success of your vision.

1. Start early 

While you may be seven to 10 years from any exit, good governance starts early. If you are growing you will bring on other members to your team and will be expanding the company and taking money from external shareholders. You will be doing business with external vendors and professional service firms. You will be creating enterprise value. These actions will need to be ultimately represented in accurate financial statements, and sound business practices.

More importantly, for the tumultuous times in which companies and the world at large are experiencing, why would you not have a Board of Directors sooner than later?

Their collective experience, and fiduciary responsibility will help you weather the storms.

And starting early does not mean filling the board seats with anyone who is willing to join. You must start early because forming a board that is Fit for Purpose, can take time.

2. Identify servant leaders to help build the company

The first time I heard of the term “servant leadership,” was in graduate school, at Chicago Booth. In a commencement speech, at the time of the Vietnam War, Robert Greenleaf described Servant Leadership to the graduating class.

I remember a line from his speech hit me like a ton of bricks. “Rather than asking yourselves what service can you render as a leader, ask, what leadership can you exercise as a servant?

Little did I know how important this concept of servant leadership would be as a board member.

The term first appeared in an essay by Robert Greenleaf in 1970 which was later expanded into a book, and the Servant Leadership movement was born.

Of his philosophy, Robert Greenleaf wrote:

“The servant-leader is servant first… Becoming a servant-leader begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead. That person is sharply different from one who is leader first… The difference manifests itself in the care taken by the servant first to make sure that other people’s highest priority needs are being served.

In my time as a board member on deep tech, biotech, and digital health  startup companies, I bring Greenleaf’s philosophy to life. The good news is that you don’t have to have me on your board to instill a servant leadership culture on your companies’ Board of Directors.

When considering or interviewing a potential board member, make sure to ask them their opinion on what servant leadership means to them. Then pay close attention to their answers.

3. Adopt governance documentation 

Set up your board for success by adopting governance that fits the stage, business model, and core assets, while keeping an eye on your comparables.

Basic company documentation that provides for governing the “business side” is really about risk prevention and protecting the “crown jewels” of the company. Following is a non exhaustive checklist of must have documentation.

  • NDA – Non Disclosure Agreement – Crucial for protecting your intellectual property on meeting and discussing your secret sauce
  • PIIA– Proprietary Information and Inventions Assignment with all employees and consideration for Independent contractors with access to proprietary content to avoid disputes
  • Information and Security Policies and Procedures– heightened threats with respect to cybersecurity will only continue. Implement security awareness training not only when onboarding  all employees and contractors but also have an annual plan
  • Employment agreements– An employment contract or contract of employment is a kind of contract used in labor law to attribute rights and responsibilities between parties to a bargain.
  • Employee Stock option plan– Why not think about this ahead of time, and use it as a tool for recruiting and retaining employees

4. Think broadly about your stakeholders that transcend the shareholders 

The business environment today provides unprecedented opportunities, largely afforded by technology enablement, to create new products, new services, and new business models. Digital and technological breakthroughs  are mainstream, affordable, and scaling at a nauseatingly fast pace, however, these don’t guarantee success.

Today there is a paradigm shift in which many  corporations are seeking to address the purpose of the business in addition to shareholder returns. Discussions in the boardroom are going beyond shareholders’ return, to  address climate change, diversity, equity and inclusion (DEI), and the impact of your company on the environment and more. There are so many things to consider, that it’s hard to keep up. Instead when you build from the bottom up, and with people who have been in the trenches, you can stay your course and build  an enterprise with purpose intentionally.

When building your board, think beyond the investors’ check. Think about contributors that can continue to build a purposeful and high trust organization. The CEO and Co Founder of Wholefoods, John Mackey  shared in his seminal piece on building the High Trust organization  some purposeful ideals that ensures the impact of the enterprise builds trust in addition to shareholder returns. These ideals include: Service to others, Discovery and furthering human knowledge, Excellence and the creation of beauty, courage to do what is right to change and improve the world.

5. Measure twice, pick once

Be smart about when and from whom investment is brought into the cap table. As Ryan Smith, CEO of Qualtrics shared, “Your cap table is your primary asset.”

The right group of  fiduciary board members will show their value through their thoughts, their creativity, their subject matter expertise, the experiences they have had, and the energetic visions that they bring.

The more time you can delay taking external investments by bootstrapping, and friends and family rounds, the less you are beholden to ideals that may not support the purpose of the enterprise.  Here are some suggestions to consider

  • Lower salaries, lower burn rate, allows pushing out to get expensive money
  • A combination of stock options to keep skin in the game
  • Choose who you bring in, based on experience (i.e operational execution)
  • Start with a non fiduciary advisory board for two year terms, pay with stock options and this allows you to test drive contributions and pay in stock options

Also, don’t forget that you will have to work closely with your board, so make sure that you can envision having fun while doing business. After all, a startup is meant to play in the sandbox!

In conclusion

While challenged, at times, when serving early stage and fast-growing companies, where resources are scarce, I find the work with founders rewarding as I assist in helping navigate the unprecedented opportunities, largely afforded by technology enablement, to create new products, new services, and new business models. I have seen time and time again, when you build a team of independent mentors in the form of a corporate board, you can find the best way to navigate from your starting point to where you want to go.

If you are looking to build a board, or are looking for an independent board member with “silver hair,” book a time on my calendar, and see if my experience can help your team grow.

#corporategovernance #servantleadership #fitforpurpose

We had a good laugh, and I ultimately agreed with her. Pointing out that since she was technically calling for my advice, apparently I was of a mature age too, and I had the requisite “silver hair” to prove it.  My business school classmate (we both went to University of Chicago Booth) then went on to share an opportunity to interview for an audit chair position for a public company board in the pharmaceutical space. She thought I would be a great candidate for the position, considering my prior work as an auditor, controller, and my experience in the pharmaceutical industry.

My interviews went well, and at the next shareholder meeting, my appointment was confirmed; beginning my long journey as a board director.

My passion is serving on the board of companies run by digital natives- Gen X and Gen Z entrepreneurs. Most have never been in a corporate job; they have never hired, fired, filed for a patent, or written a business plan. All things that I have experienced in a number of ways, a number of times, with a number of different businesses. I love working with entrepreneurs because they have the passion, energy, and drive to solve big problems, and as a board member, I can help them get there faster.

Simply put, entrepreneurs need wisdom from independent thinkers who have more experience than they do because they don’t know what they don’t know. That is where board members with “silver hair” can step in and be their silver bullet.

Before you can dive into the five steps in setting up your own board of directors, let’s first dip our toe into the water and understand what a corporate board is.

What is a corporate board?

Corporate boards are fiduciaries of a company, meaning that they have the company’s best interests at all times. In other words, a fiduciary is legally bound to put the company’s best interests ahead of their own. Corporate Boards are a group of individuals with a fiduciary responsibility in representing the shares of different stakeholders. On a board, you have many members, independents, the CEO, executive directors, and others who own shares. When a VC comes in, they typically ask for a board seat. When you are an independent board director, your responsibility is to represent the minority shareholders. Board member decision making is like a team sport, with votes representing the positions, and the sum of the decisions made by the whole board are greater than the individuals by  seeking returns for shareholders through a  sustainable business model and doing the right things for the right reasons. This is the type of board that I enjoy the most.

A Board of directors has three oversight functions

  1. Hiring /firing the CEO
  2. Ensuring the financial reporting complies with current legal and financial regulations
  3. Providing guidance/oversight on the strategy and capital allocation to deliver on the strategy of the company

Professor Charles M. Elson director of the Weinberg Center, the Edgar S. Woolard Jr. Chair in Corporate Governance and professor of finance at University of Delaware , at a NACD certification program explains why board members are legally obligated to act on behalf of an organization’s shareholders to ensure that the company is properly managed.

 Board members go about their functions guided by three disciplines:

  1. Duty of loyalty – thou shalt not steal
  2. Duty of care – thou shalt be careful
  3. Duty of good faith – thou shall not lie

5 Crucial Steps to Board Formation

Now that you know the basics of what a corporate board is and what it does, let’s look at five early actions you can do to enable your team to scale in a fast-paced environment, show business acumen, and provide safety assurance around “the moat” protecting the enterprises’ assets. Follow these steps and you will be well on your way to attracting a board of directors that will help you forge the success of your vision.

1. Start early 

While you may be seven to 10 years from any exit, good governance starts early. If you are growing you will bring on other members to your team and will be expanding the company and taking money from external shareholders. You will be doing business with external vendors and professional service firms. You will be creating enterprise value. These actions will need to be ultimately represented in accurate financial statements, and sound business practices.

More importantly, for the tumultuous times in which companies and the world at large are experiencing, why would you not have a Board of Directors sooner than later?

Their collective experience, and fiduciary responsibility will help you weather the storms.

And starting early does not mean filling the board seats with anyone who is willing to join. You must start early because forming a board that is Fit for Purpose, can take time.

2. Identify servant leaders to help build the company

The first time I heard of the term “servant leadership,” was in graduate school, at Chicago Booth. In a commencement speech, at the time of the Vietnam War, Robert Greenleaf described Servant Leadership to the graduating class.

I remember a line from his speech hit me like a ton of bricks. “Rather than asking yourselves what service can you render as a leader, ask, what leadership can you exercise as a servant?

Little did I know how important this concept of servant leadership would be as a board member.

The term first appeared in an essay by Robert Greenleaf in 1970 which was later expanded into a book, and the Servant Leadership movement was born.

Of his philosophy, Robert Greenleaf wrote:

“The servant-leader is servant first… Becoming a servant-leader begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead. That person is sharply different from one who is leader first… The difference manifests itself in the care taken by the servant first to make sure that other people’s highest priority needs are being served.

In my time as a board member on deep tech, biotech, and digital health  startup companies, I bring Greenleaf’s philosophy to life. The good news is that you don’t have to have me on your board to instill a servant leadership culture on your companies’ Board of Directors.

When considering or interviewing a potential board member, make sure to ask them their opinion on what servant leadership means to them. Then pay close attention to their answers.

3. Adopt governance documentation 

Set up your board for success by adopting governance that fits the stage, business model, and core assets, while keeping an eye on your comparables.

Basic company documentation that provides for governing the “business side” is really about risk prevention and protecting the “crown jewels” of the company. Following is a non exhaustive checklist of must have documentation.

  • NDA – Non Disclosure Agreement – Crucial for protecting your intellectual property on meeting and discussing your secret sauce
  • PIIA– Proprietary Information and Inventions Assignment with all employees and consideration for Independent contractors with access to proprietary content to avoid disputes
  • Information and Security Policies and Procedures– heightened threats with respect to cybersecurity will only continue. Implement security awareness training not only when onboarding  all employees and contractors but also have an annual plan
  • Employment agreements– An employment contract or contract of employment is a kind of contract used in labor law to attribute rights and responsibilities between parties to a bargain.
  • Employee Stock option plan– Why not think about this ahead of time, and use it as a tool for recruiting and retaining employees

4. Think broadly about your stakeholders that transcend the shareholders 

The business environment today provides unprecedented opportunities, largely afforded by technology enablement, to create new products, new services, and new business models. Digital and technological breakthroughs  are mainstream, affordable, and scaling at a nauseatingly fast pace, however, these don’t guarantee success.

Today there is a paradigm shift in which many  corporations are seeking to address the purpose of the business in addition to shareholder returns. Discussions in the boardroom are going beyond shareholders’ return, to  address climate change, diversity, equity and inclusion (DEI), and the impact of your company on the environment and more. There are so many things to consider, that it’s hard to keep up. Instead when you build from the bottom up, and with people who have been in the trenches, you can stay your course and build  an enterprise with purpose intentionally.

When building your board, think beyond the investors’ check. Think about contributors that can continue to build a purposeful and high trust organization. The CEO and Co Founder of Wholefoods, John Mackey  shared in his seminal piece on building the High Trust organization  some purposeful ideals that ensures the impact of the enterprise builds trust in addition to shareholder returns. These ideals include: Service to others, Discovery and furthering human knowledge, Excellence and the creation of beauty, courage to do what is right to change and improve the world.

5. Measure twice, pick once

Be smart about when and from whom investment is brought into the cap table. As Ryan Smith, CEO of Qualtrics shared, “Your cap table is your primary asset.”

The right group of  fiduciary board members will show their value through their thoughts, their creativity, their subject matter expertise, the experiences they have had, and the energetic visions that they bring.

The more time you can delay taking external investments by bootstrapping, and friends and family rounds, the less you are beholden to ideals that may not support the purpose of the enterprise.  Here are some suggestions to consider

  • Lower salaries, lower burn rate, allows pushing out to get expensive money
  • A combination of stock options to keep skin in the game
  • Choose who you bring in, based on experience (i.e operational execution)
  • Start with a non fiduciary advisory board for two year terms, pay with stock options and this allows you to test drive contributions and pay in stock options

Also, don’t forget that you will have to work closely with your board, so make sure that you can envision having fun while doing business. After all, a startup is meant to play in the sandbox!

In conclusion

While challenged, at times, when serving early stage and fast-growing companies, where resources are scarce, I find the work with founders rewarding as I assist in helping navigate the unprecedented opportunities, largely afforded by technology enablement, to create new products, new services, and new business models. I have seen time and time again, when you build a team of independent mentors in the form of a corporate board, you can find the best way to navigate from your starting point to where you want to go.

If you are looking to build a board, or are looking for an independent board member with “silver hair,” book a time on my calendar, and see if my experience can help your team grow.

#corporategovernance #servantleadership #fitforpurpose