If you have VC funding, your investors will want to be part of your board of directors. That means you’ll need to have one! Even if you’re not funded, you could equally decide to have a board because of the other benefits it can bring to your organization.
A good board gives the CEO a chance to zoom out of the business, get mentors, get advice and get help in certain key areas. They’ll give feedback on strategy, and they’ll support hiring searches for executive-level positions. They’ll approve the budget, decide on the capital structure and monitor governance. All these inputs are huge benefits to the organization.
“In general, the role of the board is to provide high-level oversight of corporate activities and performance, while some individual board members may take on more involved or activist roles,” according to FINRA.
If you have an ambitious business, you’re wanting to grow quickly, and you have a more complex capital structure, having a board becomes more and more important. Of course, if you have a board, you’ll need to manage it. If not done well, this can bring a lot of unnecessary work and painful headaches.
Here are four tips for managing your board to ensure you maximize their contributions and minimize your stress:
1. Have an appropriate division of responsibilities.
Set up the right division of responsibilities among the CEO, the management team and the board from the outset, and be clear on the division of responsibilities. The CEO and the team — not the board — are responsible for setting strategy. They’re responsible for bringing up evolving priorities and hiring needs, setting the budget on an annual basis, and the day-to-day running of the company. The board’s responsibility is to give feedback on that strategy.
The board approves the budget, which means they’ll question it and challenge it before approving it, but it’s up to the CEO and the team to come up with the budget. Board members can support hiring by leveraging their networks. The board will provide decisions on the capital structure, including determining whether and what type of additional funding is needed, as well how much and when. They’ll also monitor governance overall for the company through those approvals.
If you don’t set these relationships correctly from the beginning, the entire strategy of your company is in jeopardy. The strategic relationship between the CEO and the board is what gets you to the place you want to be in five years. If you are mixing roles and responsibilities, or you’re getting the board involved in pulling together a budget or doing some of the work that should be done by the CEO, you’re at risk of not being able to achieve your plan in the short term and not getting to where you want to be in the long term. Iowa State University published a nice breakdown of the role of the board of directors with business organizations.
2. Have a chair.
Include a chair of the board to provide leadership to the board itself. They help set the agenda based on feedback from other members, they schedule and facilitate board meetings, and they ensure everyone’s opinions are heard and conclusions are reached. If there are conflicts, the chair helps resolve them. Having a chair is important for the smooth operation of the board and the board meetings, as well as for ensuring the CEO–board relationship runs cohesively.
3. Establish committees.
Committees give structure around what you want the board to deal with and when. It allows for specialist decision-making.
If a topic takes up too much time in board meetings, forming a committee allows for more focus in that area. Give thought to which board members should be included on any committee. Common specialist committees to consider include an audit committee, a remuneration/compensation committee, and a governance committee.
4. Pay attention to scheduling.
Scheduling is a big thing with board meetings, because all these board members are not part of the company per se. Schedule a year ahead for upcoming meetings. Consider four to six meeting a year along a good cadence. Create a timeline around which to prepare for the board meetings ahead of time. During each meeting, start forming the agenda for the following meeting, so that’s already underway. Then make sure you start gathering materials a few weeks ahead of the next meeting, so you can send out the agenda and the board packet a week before the meeting. Allowing time for feedback on what to include in the agenda is also important to use your board effectively.
After the meeting, you’ll want to send follow-up action items to the board. I also recommend sending monthly KPI reports between the meetings, so members are kept up-to-date with what’s going on in the business.
Helping the CEO take advantage of the board in the best way possible by producing the KPIs and the financials to be used in board reporting is a key CFO function. If you need assistance or support in this area, please reach out to me. I’m happy to help.