The Fiduciary You Need/She’s a Friend, Indeed!
Yesterday, I was in a meeting with a portfolio company and the subject of board directors and the selection of a board chair came up. You could see the entrepreneurs grow itchy. Weren’t there more important things we might be doing than sitting in a meeting? Boards are a necessity, like laundry, activities that sap time and energy from the real business at hand. Mention ‘board of directors’ and the mental image is of a collection of generally older coots sitting around a table clucking tongues and sucking teeth while listening to song-and-dance presentations. Asking lots of impertinent questions about unnecessary details. People acting imperious, like the worst kind of parents.
The earlier you disabuse yourself of any such image, the better.
The Board is your creation, and a necessity if you plan to raise money or seriously scale your business.
Boards are a fiduciary, meaning each member has responsibility for the success of the enterprise. They can be held liable—as a group and individually – if the business goes south or is accused of malfeasance. A good board member takes her role seriously.
Fiduciary comes from the Latin, ‘to trust’. The board plays a critical role in the growth of your company and it’s up to you to build a board that becomes a trusted asset in your endeavor.
Google ‘board of directors’ and you’ll see this list of responsibilities:
HR: Recruit, supervise, retain, evaluate and compensate management
Strategy: Provide direction for the organization
Oversight: Establish a policy-based governance system
Management: Govern the organization and the relationship with the CEO
All well and good, but the above doesn’t begin to describe the real value that a board can provide. From too many hours spent in too many board meetings, I can think of lots of examples of what an effective board can accomplish. Here’s a handful:
Align incentives. Good boards are diverse (like good management teams). Investors and managers are rarely perfectly aligned, and the relationships are often contentious. The role of the board (and the chairman in particular) can be critical to keeping everyone on the same page, working for the best interest of the company.
Manage personalities. When necessary, the board can mediate internal management disputes, recommend organizational changes, help with HR issues that endanger productivity and growth.
Protect the CEO/Remove the CEO. Founders aren’t always good managers. Or leaders. And sometimes they need counsel, perspective, mentorship, or the door. The board as fiduciary provides continuity, support, and leadership to keep corporate body and soul together.
Provide credibility. Startups lack for many things (infrastructure, market visibility, money, time), including reputation. Young people lack for experience – a strong board can be more than a guiding hand, reputable board members bolster the credibility of a fledgling business and its management in the marketplace – and in future fundraising.
Do things that management can’t – or won’t. Cleaning up a mess. Telling the story from the board – versus the management – perspective. Pivoting, reorganizing, re-valuing, even closing things down. It’s all in the purview of the board.
Finally, the board must serve as honest broker, with a weather eye and a steady hand. The board must be trustworthy, inspire confidence, provide a necessary backstop or second opinion. It must advocate for the company, but maintain an independence when it comes to perspective and strategy. A board that parrots or blindly accepts management decisions isn’t a very good board. And you need a good board to build the best company possible.
As always, thanks for reading. Let me know what you think.
Educator (Associate Professor) / Entrepreneur / Leader of angel
communities /Entrepreneur in residence at PorterShed
and BioExcel / Rarosenberg@gmail.com