Most of the advice you hear about building a board focuses on the type of board member to choose.
But as it turns out, the number of directors has a strong correlation to company performance. The fewer the board members, the better off you are, according to a recent study that governance researchers GMI Ratings conducted for The Wall Street Journal. "Small boards at major corporations foster deeper debates and more nimble decision-making," writes the Journal's Joann S. Lublin. For the study, GMI analyzed the shareholder returns of nearly 400 large companies in 10 different industries between 2011 and 2014.
Though this particular study focused on large public companies, its advice--smaller is better--is pertinent to your entrepreneurial efforts as a founder, too. After all, you might be tempted to keep adding bodies to your board--especially if the prospective director is a celebrity, or someone whose endorsement or reputation can help elevate your brand from obscurity.
The upshot is, building a board is not easy. You have to consider not only the outright quantity of directors, but their mix of talents--not to mention all of the outside relationships they potentially bring to the table. Here's a quick list of seven mistakes to avoid in assembling and managing your board.
1. Too many members.
How many members are on a "small" board as opposed to a larger one? For the group that GMI studied, the smallest boards averaged 9.5 members; the largest averaged 14. For all companies in the study, the average number of directors was 11.2. What does it all mean? You're in good shape if you cap your board at seven or eight members. The boards at Netflix (seven directors) and Apple (eight) are that size. The Journal attributes their cohesion and swift decision-making to their relatively low head count.
2. Not enough diversity.
Diversity pertains not only to gender and ethnicity. It also means avoiding redundancies in skill sets, experiences, and outside relationships. "It is important not to form a board of too similar profiles (e.g., all are engineers or all have similar VC backgrounds) and to diversify your startup to confirm that the various required skills are in place," writes Eran Laniado, the managing director of BMN!, on VentureBeat.com.
3. Not enough advisory value.
While celebrity directors can boost your branding, you should never recruit one if their fame is all they're contributing. HubSpot cofounder Dharmesh Shah believes that an ideal board member should possess not only brand value--a name or reputation that by association enhances the brand of your company--but also advisory value: The ability to provide wisdom and experience. While that's common sense, it's a helpful reminder not to get intoxicated by the power of celebrity affiliations.
4. Tedious meetings.
The art of designing efficient, engaging meetings is an endlessly fruitful topic. When it comes to board meetings, in particular, the key is to spend the majority of time actually discussing conflicts and complex issues. You want to minimize how much time you spend providing the context for those issues. How can you do that? By consistently communicating in advance of the meetings.
Directors should arrive ready to weigh in on the complex issues, so you don't need to waste any meeting time providing backgrounds. "Board meetings that serve as update meetings are simply a waste of valuable time," notes serial entrepreneur and venture capitalist Mark Suster. Of course, escaping the comfort zone of "update meetings" isn't easy. "You feel good about yourselves because you escape the board meeting with no controversy," observes Suster. "And you feel good about your presentation and all of the positive reinforcement."
It's nice to feel good, but that's not why you have a board. You have a board to advise you with complex decisions. So don't let them off the hook by settling for the feel-good vibe of mere "update meetings."
5. Not enough knowledge about your top team.
You know your board members well. After all, if you're the CEO, you probably chose them. But how well do your board members know you--or the rest of your top team? A recent study by The Conference Board, The Institute of Executive Development, and the Rock Center for Corporate Governance at Stanford University suggests that directors do not have an especially firm grasp on the strengths and weaknesses of the executive teams they're supposed to be assisting.
Why does this matter? For one thing, the board's lack of knowledge can imperil succession planning or recruiting for executive positions. They might not realize the skills that your top team is lacking--or already possesses in abundance. In addition, the more your board knows about your top team's strengths and weaknesses, the more your board can help the current leadership team develop--by providing mentorship and ongoing evaluation.
6. Not enough up-front honesty.
Many CEOs make the mistake of trying to "spin" their boards or present them with the rosiest-sounding outlooks. "CEOs have an uncanny ability to present all of the things that are going well while saving the negative for last," writes Inc.com columnist Barry Schuler, managing director for DFJ Growth and the former chairman and CEO of America Online. "It's almost as if you hope the board will be so intoxicated by all of the great new ideas that they won't notice you will be out of cash two quarters sooner than you projected. Trust me, they will."
The bottom line here is simple: Don't waste precious meeting time thinking you need to impress the directors by leading with the positives. They'll see right through it. And they'll think less of you for it. Give the directors access to your innermost thoughts, rather than your polished presentation of those thoughts. "If you find yourself developing talking points for your board meetings," writes Schuler, "you're in trouble."
7. Not enough communication between meetings.
You don't need to base all of your communications with directors around meetings, or providing the context for those meetings (see No. 4 on this list).
You should call your directors any time you need to pick their brains or use their personal networks. Don't limit your interactions with them to quarterly installments. "I often have valuable interactions at formal meetings, but where I really get value is when I can call a board member for help with an issue," is what Jim Whitehurst, CEO of Red Hat and former COO of Delta Airlines, told Inc.'s Jeff Haden. "Maybe I have an HR issue, and one member is particularly strong with employee relations. Or maybe it's a tech issue, and another member is perfect for that discussion."
The idea is straightforward: Leverage your directors as a resource, not only in their quarterly incarnation as your board, but in their everyday lives as accomplished executives.