Source: Adam Marcus – OpenView Venture Partners
It’s no secret a lot of CEOs aren’t big fans of their boards of directors. They derive very little value from them and in some cases find the board to be an utter distraction.
Even seasoned CEOs who have managed to assemble a valuable team of advisors and mentors sometimes struggle with board management. They’re not sure how often to communicate with them, how involved they should allow board members to be, or in which areas the board could provide the most value.
So are boards as useless as some CEOs think they are, or does the CEO-BOD disconnect have more to do with the fact that some entrepreneurs simply don’t understand how to interact with and gain leverage from their board?
I tend to think it’s the latter. Ultimately, the value you glean from your board is largely dependent on the goals you set for it, and how you choose to engage with each member. For example, independent board members tend to bring a different bag of tricks than a VC. Conversely, an early stage investor will be additive in a totally different light than a late stage investor.
The most common BOD challenges are often functions of these three issues:
- You don’t communicate with your BOD: If the only time you talk with your board is during quarterly meetings, an information gap will inevitably exist. That can cause a huge operational disconnect that results in ineffective and inefficient meetings. Too much of the BOD meetings are spent getting caught up, versus having a meaningful dialogue about the key issues.
- You don’t want to show your weaknesses: CEOs are very often hesitant to open up and reveal their weaknesses. This may be born out of a bad experience in the past or just pure ego. They worry that if they’re candid about the challenges the business is facing, they’ll be viewed as incompetent.
- You don’t want to bother them: Entrepreneurs too often assume that their board members are too busy to be bothered with seemingly menial issues, and they feel like a nuisance if they ask for help.
While all of these issues are completely fair it’s your job to engage your board, communicate openly and frequently, and identify and tap into their individual strengths.
If you do that, you should be able to expect three key benefits from your board of directors:
- Strategic insight and market knowledge: Most board members are either active investors in your marketplace or former industry executives. Needless to say, both types of people can often provide key insights and connections. You should probe them on what they’re seeing in the market and ask them to highlight issues they’re seeing in the competitive landscape. Don’t hesitate to go so far as to ask them to do some additional competitive research for you.
- Executive recruiting: When you gear up to build out your management team, you can engage your board members in three key ways. First, by asking for guidance on how to find, approach, and hire top executives. Ask them to help define and maybe even guide the process. In most instances, you should have board members participate in all senior level hires. Second, by utilizing them as a selling mechanism for top talent that you hope to recruit. Get them involved in the process if you need to close a candidate. Many times a prospect will significantly benefit from hearing about a potential opportunity from a board member. Lastly, by serving as a sounding board when you whittle your executive candidate pool down to a small group of finalists. Don’t be afraid to ask for advice on whom to hire.
- Operational support: This benefit most pertains to an independent board member. If you don’t have one, get one. Ideally, that person will be someone with relevant industry and scale experience. If you already have that type of person on your board, you should ask them to evaluate one functional area of your business at least once a year. It will only lead to good things if you can get fresh eyes on the people and the processes that make you tick. You should also invite a subset of your board to your annual strategy/planning session. Again, the more experienced eyes the better.
A lot of boards — and board meetings — are ineffective for a variety of reasons, but this misalignment often leads to a painful half day and a totally ineffective use of resources. A board of directors is just another great leverage point for you. Take advantage of it.
About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.