Hacking your board is about making the best of a situation you cannot fully control. We've talked about hacks for planning and running the best meetings you can. Now let's focus on the conduct and roles of the directors themselves. Founders should have clear expectations for how they expect their directors to conduct themselves. Here's how you should expect your directors to behave and what roles they can play to help the company grow.
Directors' Responsibilities and Duties
Friendly though they may be, your directors are not there to be your friend. All corporate directors have basic legal responsibilities they must attend to:
- Determining the adequacy of financial resources
- Approving annual budgets
- Corporate policy setting and enforcement
- Evaluation (and replacement) of the CEO
- Ensuring adequate reporting to shareholders.
In discharging these responsibilities, your directors are required by law to observe three basic fiduciary responsibilities. First, they have a Duty of Care: a board member must exercise good business judgment and use ordinary care and prudence in their guidance of the business. Second, they have a Duty of Loyalty: directors must put the company's interests ahead of their own and should keep in mind that any breach of confidentiality or conflict of interest violates this duty of loyalty. Third, directors are universally believed to have Duty of Good Faith: countless legal decisions have held that directors must act with candor and genuinely beneficial motives.
If the above legal duties were all a director did, I suppose there would be some virtue, but not much value. Fortunately, good directors bring far more than just legal baby-sitting. Founders should expect the best directors to help the company across eight different areas:
1. Strategic Advice. Good directors bring a broader perspective that can be very helpful for the CEO who can "lose the forest for the trees" of daily operational activity. Many directors have tremendous business experience and can serve as a sounding board and source of strategic direction.
2. Customer and Partner Introductions. Strong directors bring a rich network of connections that should be useful in connecting to potential customers, partners, analysts, journalists, service providers, and more.
3. Time-Saving Operational Advice. Because many directors have "been there and done that," they can provide tremendous value in finding short cuts and preventing constant reinvention of the wheel with routine operational matters like setting up payroll, finding office space, dealing with investors, and the daily ins-and-outs of running a business.
4. Recruiting. Experienced directors not only have a large network of connections to help you find talent, they should also have deep experience in evaluation and hiring which should allow start-ups to hire better people faster than by trial and error.
5. Risk Management. Seasoned directors will insist that stage-appropriate financial controls are in place and that communications between the board and the financial/accounting providers does not lapse. They will also insist on regular circulation of the right financials to directors and investors. This not a lot of fun for many CEOs, but is a vitally important discipline the board should provide.
6. Fundraising. Many directors, especially investor-directors are experienced and connected in the fundraising world and can provide extremely valuable guidance on the who, what, when and how aspects of raising additional rounds of capital.
7. CEO Evaluation. Good directors will be the first to point out when a CEO is struggling with his or her job, and can be extraordinarily helpful with coaching and advice, including the selection and hiring of an official CEO coach if the situation calls for it. It should also be said that directors are the ones who will kick off the process or transitioning the CEO into a different role if the situation requires it.
8. Driving a Successful Exit. Even if directors are not all large investors themselves, they represent the investors and are responsible for maximizing value for shareholders. Thus directors have the motivation, and typically the experience and connections, to help the company on its path toward eventual liquidity for shareholders.
Not every director will be strong in every category, but working together, your board should be able to provide you with ample value to cover these important areas. As a founder CEO building a board or working with a board you should give some thought to how your board stacks up across these categories and try to hold them as accountable for value-add, as they hold you accountable for performance.
Now that we've covered the expectations you should have of your board, next we will look at ways to deal with some problem behaviors so that your company gets the value-add it needs.