The Agenda. This little one page document sets the tone, pace, and content of your board meeting. It’s fundamental to the success of a board meeting, so you’d think it wouldn’t be as screwed up as often as it is. As Jim Lejeal and I continue our Board of Directors series , we thought we tackle this subject next.
Once you’ve attended a number of board meetings, we expect you’ll reach the conclusion that a good agenda can make a big difference in the quality of a board meeting. The most common mistake is that there isn’t an agenda; the second most common mistake is that when there is an agenda, it’s not followed. We’ve found the latter to be the more pervasive – it’s easy to put together a boilerplate agenda and use the same one meeting after meeting, but the board meeting itself covers a different set of issues and travels down a path that would cause an observer of the meeting to think the agenda and the meeting existed in parallel universes.
A good agenda is one page long, has each topic clearly articulated, and lists the length of time expected for the topic and the person responsible for leading the discussion. There should be no surprises in the board meeting – the agenda should be clear about what is being covered.
We suggest that – as a starting point – you destroy the boilerplate agenda that your law firm gave you and start from scratch. Ask a few of your board members for sample “good agendas” from other boards meetings for boards that they think run well. Use this as a background, but create an agenda that is specific to your board meeting. Create a new agenda for each board meeting – don’t fall in the rut of copying the last meeting’s agenda.
Order the agenda so that the topics that are the most important to address in the meeting are covered first. A common mistake is to save the important topics for the end of the meeting. This is often done to facilitate a closed session of the board to address these topics. However, board members often have time constraints (other meetings, planes to catch) where they have to leave around the time your board meeting is scheduled to end. By putting the important issues last, you run the risk of having half your board leave mid discussion of the company’s pressing issue – or worse – you unneccesarily rush through the issue, raising the risk that the issue at hand isn’t properly vetted or understood by your board.
Circulate the agenda to your board in advance and get feedback that you’re covering topics that you and your board feel ought to be discussed. If your board has a Chairman or a lead director, enlist him to help you with this. A side note to all you frustrated board members out there who feel that management doesn’t cover the pressing issues you’d like to see covered in your board meetings: an agenda circulated in advance of the meeting is your opportunity to schedule the topics you’d like to see addressed.
Assign time blocks to each item that are reasonable allocations of the meeting time. Stick to the time constraints. If your board culture is to involve members of management in the board meeting, review the agenda with your team and discuss the time constraints in advance. It’s frustrating when a discussion on say – Marketing – that is assigned 10 minutes (often 9 minutes more than is necessary) is allowed to consume 45 minutes of your meeting. Schedule breaks and stick to the allocated time.
Don’t simply copy the flow of your board report on your agenda and spend your board meeting talking about what you’ve already delivered to your board in written format. While portions of your report deserve discussion in your meeting, performing a page-flip-read-and-review of your written report is a huge waste of time (and nauseating to your board members that can actually read.) Presumably your board has already thoroughly read your board report (if you don’t think they have, make sure you’ve set the expectation that you expect them to do this) – they don’t need you to re-read it to them in your meeting. Give your board time to ask questions and discuss any issues in each operating area of the business, using the written text as a backdrop.
With respect to the financials, you should ignore what we just said above. A financial review should be performed at every meeting along with a page-flip-read-and-review of the primary financial statements regardless of how well your board has studied the financials in advance of the meeting.
Make sure that you’ve allocated time for your voting issues and identify what these items are in the agenda to ensure you vote on all of them.
Finally, pay attention to the silly little details. Include the time and date for the meeting on the agenda. If you have the potential for board or management team members to call in, including the dial up number (if it’s a toll free number, include a local number for the board members calling in internationally.) Include the contact info for someone at the company that can assist any board member with directions or logistics in case they have difficulty getting to the meeting or dialing in. Include information for meals if you are having them.
When we started this point, we talked about a “good agenda.” Your board agenda doesn’t have to be “great” – “good” is fine. However, a “good” agenda can help you with the ultimate goal – that of a great board meeting.
For those of you that missed my note yesterday, I’m going to start using the first paragraph of my posts with an announcement about something in my world. Today’s is the launch of a new product from Orbotix called Selfiebot. My Orbotix friends are masters at creating amazing robots and are hard at work on the next generation of what we are calling “connected play.” Selfiebot is an autonomous flying robot that shoots HD photos of you, freeing you from the limitations of a handheld startphone when taking selfies. Check out Selfiebot today.
While we are on the topic of Orbotix, let’s talk for a little while about expectations for outside board members. Yesterday I met with an outside board member of another company I’m on the board of. He’s been on the board for about six months and is feeling uncomfortable with his contribution. He’s a very experienced CEO with a large exit under his belt, a founder/investor in several other companies, and an excellent operator. But he hasn’t been an outside board member much. He wanted to get feedback from me on how he was doing and whether his expectations for his own engagement were correct, and what he could do to work with the CEO and leadership more effectively.
I’m an enormous believer in the value of outside directors relatively early in the life of a company. I like to keep boards small and weighted toward outside directors as the companies grow, rather than just a cadre of VCs sitting around the board torturing the CEO with conflicting advice and opinions. I’ve written about this extensively in Startup Boards: Getting the Most Out of Your Board of Directors.
I generally see three types of outside board members getting recruited to a board of a VC backed company.
- The friend of the VC: This director is really a proxy for the VC and not an independent thinker. Danger danger.
- The friend of the CEO / entrepreneur: This director is really a proxy for the entrepreneur and not an independent thinker. Danger danger.
- An independent director. Now, this person can be a friend of the VC, or a friend of the CEO / entrepreneur, but is an independent thinker. Or they might be someone from industry that is known to one of the investors or the entrepreneur, but is recruited specifically by the CEO to join the board. Or it might be someone lightly known, or even unknown, but again is an independent thinker.
Note the emphasis on independent thinker. It doesn’t matter who the relationship originates from. There is a unique role for an outside director in a startup company and it’s one that can be profoundly helpful to the CEO. But that person needs to be operating from a headspace of an independent thinker, not a proxy for one of the other participants on the board.
The person I was talking to yesterday is definitely #3. While I’ve known him for a long time and was an investor / board member in his successful company, he most definitely is not my proxy. I learn an enormous amount from him about the particular dynamics of the specific business since he knows it so well, so when he talks, I listen carefully. I have no interest in being in between him and the executives of the company or hearing about what comes up in his operating level discussions, unless he feels like it’s a board level issue and discussion. But most importantly, I want the CEO to learn from this outside director and his experience by developing his own deep, personal relationship.
Back to Orbotix. We’re recruiting at least one outside director to Orbotix as part of the continued scale up of the company. Paul Berberian, the CEO, wrote a magnificent short overview of his expectation for a board member that he’s sharing with everyone he’s talking to. I asked his permission to reprint it here – it follows. If you are considering adding an outside director, I encourage you to prepare a similar document, and make sure it’s for all of your directors, including your investor directors.
Orbotix Board of Directors Expectations
Orbotix is a startup company and our expectations for board members can be summed up with the following statements:
- Be True
- Be Prepared
- Be Present
- Be Available
- Be Supportive
- Be A Player
Be True: No bullshit or tap-dancing on any subject. Be honest with your thoughts and opinions. Our time together as a group is limited and holding back or sugar coating any issues or concerns you have with the business is simply wasting time in trying to get to the real discussion. If you don’t have an opinion or relevant experience to make an informed decision – say so. No one knows everything. And of course all the other table stakes for serving on any board such as always act in an ethical manner and in the best interest of the company.
Be Prepared: We put a lot of time into preparing the board book – read it in advance. We do not review the board book at the board meeting unless there are questions. The first few minutes are open for questions, approval of standard business items and then we dive into a deep discussion on one to three key subjects. These subjects will we outlined in the board book but additional material may be presented at the meeting. Try to come to each board meeting with one big question or insight you’d like to be addressed during our strategic discussions. Each board meeting will end with an executive session where the directors can give feedback to the CEO as well as talk privately without management present. The lead director will then follow up with the CEO to provide any final thoughts on the meeting.
Be Present: We have four board meetings a year and expect board members to be physically and mentally present. Board meetings are typically 3 hours or less. If you cannot attend physically getting access to a high quality video conference system can be a substitute. We take great care to plan BOD meetings around your schedule so please make them. Missing one board meeting can happen, but it should be rare. If you miss multiple board meetings we assume that something else is taking priority and you should evaluate ongoing participation. When at the board meeting turn off you phone and laptop and participate in the discussion. We will take breaks to allow you to check messages. If you are highly distracted due to other pressing matters, please let us know in advance so we don’t question your willingness to participate. We have a “small group meal” in advance or after the board meeting – typically a dinner the night before. The meal will have 2 to 4 people and will include an equal number of board members and management. This is the opportunity for the board to get to know management and each other at a deeper level – groups will be different for each board meeting. They are not designed to conduct the board meeting in advance. An Orbotix exec will coordinate the meal in advance.
Be Available: One of the key roles a startup board member can provide is to act as a coach or sounding board for the CEO. These interactions typically occur between board meetings. Making time on your turf to have these interactions is invaluable. The expectation that these meetings will not exceed more than a few hours per quarter. Often approvals are needed in short order – board members are expected to be responsive on emails / calls that clearly declare action needed in the title or message.
Be Supportive: As a board member you are expected to support the company and CEO. If you support the company but not the CEO you have three options 1) coach the CEO 2) replace the CEO or 3) resign. Unless there is some unusual circumstance, options #2 and #3 should not be without warning as it is expected feedback will be shared with the board in the executive session. An engaged and supportive BOD member will use their best efforts to help Orbotix succeed. Examples include leveraging your network for creating meaningful partnerships and introductions, and freely sharing your expertise and insights on strategy, products and performance. Additionally we expect every board member to speak about the company favorably in public and share their enthusiasm for our work with others.
Be A Player: We make fun things. That is why before each BOD meeting starts we begin with a play session to highlight our accomplishments and developments since our last meeting. We want our BOD members to embrace their inner child and play with our creations, offer feedback and most importantly share with their friends and family to help us shape our products and experiences. We cannot build fun things unless we are all having fun – so let’s play!
I go to a lot of board meetings. As a result, I’ve reviewed a lot of board meeting minutes. In general, the philosophy among most VC-backed companies – promulgated by the law firms for these companies – is to keep the board minutes “light.” They should cover the substance of the meeting and have any specific votes, option grants, or board level issues documented, but they should not contain extensive details about the presentations giving in the board meeting.
I regularly get asked for “sample board meeting minutes”, especially among newly funded companies that are just starting to have board meetings and might not have their outside counsel present at the meeting (although most outside counsel’s that are credible and used to working with early stage companies will attend board meetings at no charge – just ask as part of your initial interview process with the firm – it’s very useful to them to be there so they can stay up to speed on what is happening at the company.) Following is a template for a sample set of board meeting minutes.
[INSERT NAME OF COMPANY]
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS
[Insert Date of Board Meeting]
A meeting of the Board of Directors (the “Board”) of [Insert name of company], a [Insert state of incorporation] corporation (the “Company”), was held on [Insert date of board meeting] ([Insert time zone—i.e. Mountain Daylight Time]) at the offices of the Company.
[Insert names of directors present]
Also Present Were:
[Insert names of other people (mgmt., etc.) present]
[Insert names of directors absent]
[Insert names of legal counsel present]
NOTE: It’s generally good to note next to the above listing if the attendee(s) participated via telephone (otherwise it’s assumed they participated in person at the above referenced location]
Call to Order
[Insert name of CEO or board chair] called the meeting to order at [Insert start time of meeting] ([Insert time zone—i.e. Mountain Daylight Time]) and [Insert name of secretary] recorded the minutes. A quorum of directors was present, and the meeting, having been duly convened, was ready to proceed with business.
[Insert name of CEO] reviewed the agenda and welcomed everyone to the meeting. Next, [Insert name of CEO] discussed the current status of the company and its progress. A number of questions were asked and extensive discussion ensued.
Sales & Business Development Update
[Insert name] next provided an update on the overall sales progress and sales pipeline of the Company. He also presented the status of business development discussions.
* [Insert name] joined the meeting*
[Insert name] provided a comprehensive update on the Company’s financial plan and forecast. [Insert name] also reviewed the Company’s principal financial operating metrics. Discussion ensued.
The Board next discussed the timing and creation of the 2007 Operating Plan.
Approval of Option Grants
[Insert name] presented to the Board a list of proposed options to be granted to Company employees [and advisors], for approval, whereupon motion duly made, seconded and unanimously adopted, the option grants were approved as presented in Exhibit A.
Approval of Minutes
[Insert name] presented to the Board the minutes of the [insert date of previous board meeting] meeting of the Board for approval, whereupon motion duly made, seconded and unanimously adopted, the minutes were approved as presented.
*Management was excused from the meeting *
The Board next discussed a number of strategic topics. Questions were asked and answered.
There being no further business to come before the meeting, the meeting was adjourned at [Insert time of adjournment] ([Insert time zone—i.e. Mountain Daylight Time]).
[Insert name of secretary], Recording Secretary
NOTE: Create (and delete) additional headings and sections above as necessary to capture the major agenda items of the board meeting.
NOTE: If attendees join after the meeting start time or leave before the meeting adjournment, it’s preferable to note when they join and leave the meeting as indicated above by the asterisked notations.
In my new book, Startup Boards: Getting the Most Out of Your Board of Directors, in addition to decomposing and explaining a lot about the functioning of board meetings, I also describe my ideal board meeting.
I had four of them this week. That’s a lot of board meetings in a week, but my weeks tend to either be “lots of board meetings” or “no board meetings” as I generally bunch them up. Thankfully, all four of them used my ideal board meeting template.
A critical aspect of my ideal board meeting is that the entire board package should be sent out several days in advance to all board members. It should be thorough, including whatever the CEO wants the board to know about what has happened since the last board meeting. While I prefer prose to a PowerPoint deck, either is fine. Optimally it’s in a format like Google Docs where everyone on the board can comment on specific things, allowing open Q&A on the board material prior to the board meeting. I like to decouple monthly financial reporting from the board package, but including a look back of the financials, along with discussion and framing is useful. But the meat of the board package should be what’s going on now and going forward, not looking back. The looking back is for support of the discussion.
Then – the board meeting has a simple structure intended to fit in three hours. Optimally all participants are either in person or on video conference. Since I’m not traveling for business right now, almost all of my board meetings have a video conferencing component. When done correctly, it’s often just as effective as an in-person meeting, and in some cases (if you follow my video conferencing rules) even more effective. What is not effective is when one or more people are on an audio conference.
Once everyone is settled, break the board meeting into three discrete sections. They, and their descriptions, follow:
Administration (30 minutes): Board overhead, resolutions, administration, and questions about the board package.
Discussion (up to 2 hours): Discussion on up to five topics. The five topics should fit on one slide or be written on the white board. The CEO is responsible for time boxing the discussion, or if he needs help, he should ask the lead director to do this. If you don’t have a lead director, read my book and get yourself one. This should be a discussion – you’ve got your board in the room – use it to help you go deeper on the specific topic you are trying to figure out. These topics can be on anything, but my experience is that the more precise the context is, the richer the discussion. I prefer for the full leadership team to be in the meeting for this part, although it’s entirely up to the CEO who is in the room.
Executive Session (30 minutes): CEO and board only. Here the board can give feedback specifically to the CEO or sensitive issues around personnel or other things the CEO wants to discuss separately from the management team can be covered. At the end, the CEO leaves and let’s the board have some time alone where the lead director checks in if there is any feedback the board would like to give the CEO.
If you have less than five topics, the board meeting can take less time. Or if the five topics only take an hour to go through, the board meeting can take less time. There is nothing ever wrong with ending a meeting early. Ever.
Now this template doesn’t always work – you often have other specific things you have to address. When a company is going through an M&A process, the board meetings tend to be frequent and cover other stuff. Or, when the company is in a downward spiral, or dealing with a crisis, the focus is often very precise.
But in my world, the day of the “board update” is over. I find no value in sitting in a room for three hours, paging through a PowerPoint deck while people present at me, and the people around the table ask an endless stream of questions, mostly demonstrating that they haven’t been engaged in what the company has been doing since the last board meeting.
Do you remember your first board meeting? I do. Well, I sort of do, kind of, maybe.
Danielle Morrill of Mattermark memorialized her first board meeting on the web in her post Post Series A Life: Reflecting on Our First Board Meeting and What It’s Like Working with Brad. It’s a detailed view of her expectations leading up to the first board meeting we had along with the blow by blow from her perspective of the board meeting.
I have two simple pieces of feedback to Danielle, Kevin, and Andy about the board meeting. First, bring the rest of the leadership team the next time so we have a room full of the team for most of the meeting. Second, you did great – I love the style of board meeting we had.
We didn’t have board meetings at Feld Technologies – we didn’t really have a board. There were three owners – me, Dave Jilk, and my dad. Dave and I had a monthly offsite where we went away for a day and an overnight somewhere within driving distance of Boston. We did this eight to ten times a year and these were some of the most powerful and useful working days, and personal days, we had together. Once a year my dad would join us for a long weekend somewhere where we hung out, talked about the business, and drove around New England.
My first real board meeting was at NetGenesis. I remember the place – an MIT classroom. I remember the attendees – Rajat Bhargava, Eric Richard, Matt Cutler, Matthew Gray, and Will Herman. The chalkboard was black, the chalk was white and dusty. Will and I had each invested $25,000 for a total of 20% of the company. It was 1994. The meeting was around a wooden MIT classroom table that looked like it was from 1894. I don’t remember much of the meeting, except we wrote lots of lots of things on the chalkboard. There were no PowerPoint slides.
I remember my first board meeting for a company I joined as an outside board member. This company was SBT Accounting Systems, based in San Rafael, California. I flew to San Francisco from Boston, stayed overnight in the city, and drove over the Golden Gate Bridge. I’d only been to San Rafael once before, presumably to interview for the board position under the auspices of spending the day at the company. I was nervous because I had no idea what to expect. I showed up a little early, was ushered into the very large board room, and fed breakfast of bagels, pastries, fruit, and coffee. For some reason, I remember eating so much that I was full before the meeting started. SBT always had outstanding, freshly ground coffee filtered through Melitta cone filters which meant that I often drank way too much coffee. Unlike my NetGenesis board meetings, and the few others that I had started attending like ThinkFish’s, this one was formal. Everyone took their place at the table, with blue board books in front of them, and “the show” began. After a number of years of faithful service, I left that board, but I learned a lot and remember the time on that board as helpful to forming my view of an ideal board meeting.
My book, Startup Boards: Getting the Most Out of Your Board of Directors, covers what I’ve learned over the ensuing hundreds of first board meetings, and thousands of board meetings, I’ve participated in. While the book was hard to write, and at some points I feared that it would be excruciatingly “boring” to read, the feedback has been positive, especially from entrepreneurs and CEOs like Danielle who are having their first “real board meeting.”
Just remember – keep it real, not fake. Be yourself. And own the meeting.
Several people have recently asked me variants on the question “How should I compensate a board member in my young private company?” I’ve experienced this question from all sides, having been the entrepreneur with an early stage company, a board member of an early stage company, and an investor / VC in companies that had board members at early stages, so hopefully my answer is balanced and a function of the law of large numbers (I probably have over 100 direct data points at this point in my life).
In general, I have a set of simple rules for board member compensation:
- 0.25% to 1.00% vesting annually over four years
- Single trigger acceleration on change of control
- Clear understanding as to how the vesting will work if the board member leaves the board
- No direct cash compensation
- Reimbursements for reasonable expenses
- Opportunity to invest in the most recent financing
Following is a detailed explanation of each item.
0.25% to 1.00% vesting annually over four years: While the ask from sophisticated board members will vary widely here, I’ve found that most people will accept the argument that they are getting between 25% and 50% of what a typical VP will receive (1% – 2%). It’s always better to grant more options that vest over a longer period of time then to do annual grants early in the life of the company – that way the board members’ incentives are aligned with all shareholders (presumably they are getting the options at a low strike price and will be motivated to increase the value of the stock while minimizing dilution over future financings). These options should come out of the employee option pool and should be thought of equivalently to the employee base (e.g. if there is an option refresh due to a down round financing, the board member should be included in the refresh).
Single trigger acceleration on change of control: Acceleration on change of control is often a hotly negotiated item in a venture financing. I’ll discuss it in greater detail in a future post in the term sheet series. I rarely think single trigger acceleration in change of control is appropriate, but I’ll always accept it with regard to board members since 100% of the time they will not be part of the company post acquisition. By providing 100% acceleration on change of control, you eliminate any conflict of incentives in an M&A scenario.
Clear understanding as to how the vesting will work if the board member leaves the board: In most cases, board members serve at the will of a particular constituency, which could range from a particular VC investor (e.g. the outside board member might be appointed by the Series A shareholders) to the entire shareholder base (e.g. chosen by a shareholder vote). As a result, a non-VC board member is typically not contractually entitled to their board seat and often leaves the board (either because they chose to due to other responsibilities), is asked to leave (because he is not contributing actively to the business), or is replaced (by the shareholder group that has the contractual right to the board seat). As a result, it should be clear – in advance – that the vesting on the options ends if the person is asked to leave the board or voluntarily leaves the board. I’ve never had an issue with this when it was discussed up front; I’ve occasionally had issues when it wasn’t (e.g. the person wants additional vesting beyond their board service, which I think is inappropriate except in the case of the acquisition of the company – see the comment on single trigger above).
No direct cash compensation: Period. If someone is asking for cash compensation for board service in an early stage company, they are not qualified to be a board member since they simply don’t get it. If the board member is also doing specific consulting for the company beyond the scope of a typical board member, you’ll occasionally see some cash comp for the consulting services. However, the bar for this should be high and well defined – a “monthly retainer” for “helping the company” is inappropriate.
Reimbursements for reasonable expenses: Board members should always be reimbursed for expenses they incur on behalf of the company. However, these should be “reasonable”, should conform to the company’s expense policy (e.g. if execs travel coach, board members should only be reimbursed for coach tickets), and board members should be respectful of cash in early stage companies (for example, if a board member travels to several companies during a trip, he should only charge a company for the segment(s) pertaining to them).
Opportunity to invest in the most recent financing: I strongly believe that all board members should be given an opportunity to invest on the same terms as the most recent VC investment. Depending on the characteristics of your most recent financing, this might be difficult (check with your lawyers) – at the minimum the board member should be invited to invest in your next round. While I always encourage this investment, I don’t view it as mandatory – I think it’s a benefit an outside board member should have for serving on a board, not a requirement.
In seed stage companies – especially pre-funding – an early board member might receive founder status depending on his involvement in the company. When I was making angel investments, I’d occasionally commit to a much higher role than simply “a board member” – occasionally I’d be chairman and/or an active part time member of the management team. In these cases, I’d typically get an additional equity grant (usually founders stock) separate from my board grant. As with other members of the founding team, I’d have specific roles and responsibilities associated with my involvement (usually financing, strategy, and partnership related) and – even though I was a board member – I was often accountable to the CEO for these responsibilities.
In addition to a board of directors, many early stage companies have an advisory board. I’ll dedicate a longer post to how to make sure these are effective (as they rarely are) – in any event, advisors typically have a much lower commitment to the company and, as a result, should receive a much lower equity grant. In addition, advisory boards tend to come and go so it’s better to compensate members on an annual basis. A good proxy for the amount is an annual grant of 25% to 50% of the four year grant you’d give a junior engineer (so 1x – 2x a junior engineer if the advisor stays engaged for four years). Obviously, there are exceptions to this, but if you want to get meaningful, sustainable involvement from an “advisor”, consider giving him a more significant role.
Finally, VCs should never get additional equity for board service in private companies. The VC has already purchased his equity and his board involvement is a function of his responsibilities associated with his investment. I’ve been on the receiving end of this and it has always felt weird. In a public company, it’s typical to compensate all board members – including the VCs – equivalently, but private companies are a different matter.
I had a great board meeting today at Quova and a near perfect board meeting at Rally last week. While it’s a pleasure to be involved in both companies since they are both performing very well, the structure and tempo of each board meeting really turned me on.
I had started to notice a disconcerting rhythm to some of my board meetings. On the positive side, several of my CEOs have done a spectacular job of putting together comprehensive board packages that we’ve replicated throughout much of our portfolio. As a result, we have substantial, detailed board packages that come out around a week prior to the board meeting. This gives me plenty of time to read through the board package, ask specific questions of the CEO in advance of the board meeting, and study the financials carefully. Since most of my companies are working off the same board package template, the information is predictably organized, easy to follow, and comprehensive.
However, I’ve noticed recently that a lot of the time being spent in the board meeting was being squandered by effectively reading through the board package in real time. This is often disguised as “functional updates” where each VP goes through his part of the business by simply rehashing the information in the board book. Given that the typical board meeting is three hours, I started to notice that most of the meeting was being spent reviewing the board book (which I’d already read and gotten 90% of the information from) and a minority of the time was being spent on non-operational (e.g. strategic) discussion.
I’d subtly made this comment to several of my CEOs (as subtle as I’m capable of being – visualize a bull in a china shop) during board meetings in Q4 where I realized that while it was exciting to rehash what was essentially solid performance for 2004, I was much more interested in spending time looking forward and talking about what we needed to do to drive asymmetric business value in 2005.
Rally’s board meeting last week nailed it. The board package came out five days prior to the meeting so everyone had plenty of time to read it. We had a typical three hour board meeting that started on time. The meeting then occurred as follows:
- 5 minutes: Administrative items (approve the minutes, approve new options).
- 55 minutes: Department updates. We used the board package as the guide, but each exec spent a few minutes summarizing key points (rather than reading from the package) and then we drilled into Q&A and discussion on each area. It was a spirited discussion that was forward looking (e.g. “what are we doing in the next 30 days about issue X”) rather than backward looking (e.g. “good job on doing Y last month.”)
- 90 minutes: 2005 Strategic Priorities. We worked from a six page powerpoint presentation (that had crappy production value, but was high content value) and spent 80% of our time on one slide. The entire leadership team participated in the discussion – it wasn’t a “presentation of a conclusion” but a “discussion about what to do given limited resources and divergent opportunities.”
- 30 minutes: Executive Session (Board Only). We talked about a handful of personnel related issues, summarized the discussion, and set the tone for Q105.
I left the meeting feeling both excited by where Rally is at, delighted by the dynamic among the members of the leadership team, and satisfied with the direction the board gave the leadership team.
Today, I had a very similar board meeting at Quova. While we covered very different topics – especially since we celebrated Quova’s five year anniversary today (with a fun event at the San Francisco Museum of Craft + Design) – the preparation was equivalent, the tempo was similar, and the I walked out of the meeting equally excited about where Quova is and how the leadership team is interacting with each other.
The CEOs of Rally and Quova reminded me how a well-executed board meeting early in the year is a great way to set the tone for the business for the year to come.
I joined my first board of a company other than mine in 1994 (NetGenesis). Since then, I’ve sat on hundreds of boards and been to a zillion board meetings. It crushes my soul a little to think of the number of board meetings I have sat through that were ineffective, poorly run, or just plain boring. I guess that’s part of the motivation I have in writing Startup Boards: Reinventing the Board of Directors to Be Useful to the Entrepreneur (the next book in the Startup Revolution series which should be out sometime this summer.)
In the mean time, over the past two years I’ve done a lot of experiments with the boards I’m on. I’ve tried a lot of different things – some that are awesome, some that don’t matter, some that suck, and some that have been epic fails. For any that aren’t awesome, I’ve tried to kill the experiment quickly so it didn’t hurt anything and when I reflect on everything I’ve tried I think I’ve managed to “do no harm”, which is more than I can say for a lot of the other VCs who I’ve sat on boards with since 1994.
By this summer, I expect I’ll have a very clear view on the best practices from my perspective for making a Startup Board effective. Until then, I’m still running experiments, or experiencing experiments that the entrepreneurs run. And I’m thinking out loud (including in posts like this) on what has worked and hasn’t worked.
One of the things I’ve played around with is the board package. The number of different formats, styles, information incorporated, and distribution methods over the years boggles my mind. I not-so-fondly remember toting around “binders full of board meeting material” in the 1990s. Or pre-Gmail having a “board meeting folder” in Outlook so I could quickly find the upcoming board meeting documents. Or fighting through 19 attachments to an email to figure out where the actual board material was. PowerPoints, PDFs, Word documents, text files, Excel spreadsheets, Prezi docs, videos, email outlines – the list goes on.
Recently, I had a magical moment. I’m a huge believer in distributing the board material a few days in advance, having all the board members comment on it in advance of the meeting, and then having the meeting without going through the board material page by page. No death by endless Powerpoint, no reading a document I’ve already read. My favorite board meetings are the “one slide board meeting” where the only piece of paper allowed in the room is the agenda of the meeting.
When entrepreneurs don’t get this, I suggest that they pretend their board members can read and cognitively process the information in advance. And, if they don’t believe their board members will do this, just start having the board meeting under this assumption and watch how they board members get their shit together and read the material in advance.
In this recent magical moment, rather than receiving anything via email, a Google Doc notification showed up in my inbox. I went to it and the entire board package was in a single Google doc file. The entire management team and the entire board was included on it. As I read through the Google doc, whenever I had a comment or a question, I highlighted the section in question, hit Command-Option-M, and left a comment. Then, as other people read through the package, they left comments. And then the management team responded to the comments.
Voila – an interactive board package. Zero special technology. It wasn’t planned, or assigned. It just naturally happened. When we showed up to the board meeting, everyone had the issues in their mind. We’d already cut out an hour of setup, and probably another hour of discussion. So we got right down to the higher level issues that the board material, and comments, and the responses generated.
In this case, the CEO created a very simple agenda immediately before the board meeting that captured the strategic issues we needed to address. There were a few tactical questions outstanding – they got knocked off quickly. We had a two hour board meeting – 90 minutes of it was intense and fruitful. No one referred to any paper – we looked each other in the eyes for 90 minutes and had a deep, engaged, substantive discussion.
I’ve been describing this as a part of a “continuous board engagement” – similar to “continuous deployment and continuous innovation” in Eric Ries’ The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. I get information daily from most of the companies I’m involved in. I’m in the flow of a lot of information – some “noise” but a huge amount of “signal.” Then – the week before the board meeting, the current state of things gets consolidated into a dynamic document that allows everyone involved to interact with each other around the content.
I’m going to play a lot with this in the next few months. Any suggested tweaks or changes to this approach? Any obvious pitfalls?
I wrote the following article for The Kauffman Foundation’s Entreworld web site some time in the late 1990’s. Someone reminded me of it the other day and I looked it up. It’s especially relevant today after all the major public company scandals of the past few years, the passage of Sarbanes-Oxley, and the renewed attempts at activism by boards of directors. A few of the comments – such as the one on D&O insurance – are dated (D&O insurance for private companies is economical, although not often that useful). I’ve sat on plenty of boards and when I reflect on them am sad to say that they are spread equally between the first two categories I list below (I’ve been on lame duck boards, but have resigned quickly after realizing that’s what they were). I wish I could say they have all been (and are all) working boards, but I can’t. I guess it’s up to me to continue to be vigilant about changing that in the future.
Every large public company has a board of directors. The news is filled with stories about prominent people joining boards, about boards kicking out presidents and founders, and about personal liability of members of the boards. In a large public company, the board plays an incredibly important, and often controversial role in the governance and development of a company.
Given this, should a startup or small entrepreneurial company have a board of directors? I say, emphatically, YES!
By definition, every corporation has a board of directors. The minimum legal size of the board varies by state. In some states, the minimum size is three people (typically a president, secretary, and treasurer–also referred to as the officers of the company). In other states, the minimum size is linked to the number of shareholders–if there is only one equity holder in the corporation, there only needs to be one board member. Of course, there are several different types of companies, such as partnerships or sole proprietorships that do not require a formal board.
For many companies, the board of directors ends up being the founders of the company. However, I believe there is huge value in expanding the board to include “outside” directors–those that do not work for the company, but offer their time and advice to help shape and guide the company. These outside directors serve a similar function to those of a public company, but often with a much different approach.
It is important not to get a board of directors confused with a board of advisors or a strategic advisory board. These other boards are incredibly valuable tools for a company, but they serve a dramatically different purpose which I will discuss in a separate article.
I have been a member of many boards of directors and I have come to classify each board as one of three different types:
- Working Boards: These are boards that role up their sleeves and help the founders and management team of the company get the job done. They meet frequently, have animated, engaged discussions, and offer significant ongoing support and help to the key owners and managers of the company.
- Reporting Boards: These are boards that meet four to six times a year for a status report on the company. If everything is going well, they tend not to have much to say. If there are problems or issues, they are often critical of the CEO and the management team. If things continue to go poorly, they often take action of some sort.
- Lame Duck Boards: These are boards that have no influence on the company. In many cases, they are simply rubber stamp exercises for the CEO or founders.
The only type of board that I believe is useful for a small, entrepreneurial company is a working board. The pressures in an entrepreneurial company are great enough that the founders and the management team need everyone involved doing everything they can to make the company successful. This does not mean that everyone agrees on everything, or the members of the board are not critical of the management team. But, it does mean that there is an active, open commitment to work with the founders and management team to make the company succeed wildly.
Board members come in many shapes and sizes. In my experience, a good size of a board is five to seven people, including the insiders. If there are only one or two insiders on the board, a total board size of five is plenty. If there are more than two insiders on the board, seven board members is more appropriate. I recommend that several of the outside board members be highly experienced entrepreneurs in the market that the company is going after. The rest of the board members should be experienced entrepreneurs in other business segments, but with a particular interest in something about the company.
The chairman of the board is often one of the insiders, such as the president or CEO. However, in many cases, you may want the chairman to be one of the outsiders, especially in a situation where one of the outsiders helped start the company by putting up some of the initial seed capital. The role of the chairman varies dramatically, but it often raises the level of commitment of the individual board member that is the chairman and the overall board in general.
Significant outside investors, especially venture capitalists, will want board seats. I recommend you limit the number of outside investors on your board, unless they fit the criteria listed above. A venture investor only needs one board seat – if you have a syndicate of venture investors (several different venture capitalists that invested together in the round), consider offering one board seat and extending observer rights (e.g. the right to attend any board meeting) to the other investors. These rights should be negotiated as part of the investment.
In addition to functioning as a regular sounding board for the management team, board members can contribute substantially to the business, both as a group and individually. Board members can be incredibly useful during financings, merger and acquisition activity, general corporate strategy, and executive recruiting. Do not overlook the experiences and skills of each of the individual board members–they can often play high value, short term consulting roles as needed.
Board members should be compensated for their efforts. At the minimum, their travel expenses should be paid. Most entrepreneurial companies should set up an option package for the board members – depending on the level of effort requested of the board, this could be as little as 0.25 percent of the company or as much as 2 percent of the company vesting over four years. In addition, many board members are interested and willing to invest in the company. I always believe that it is in the best interest of a company to have the board members have a meaningful equity stake in the company.
In some cases, the directors that you recruit will have a substantial personal net worth. In these cases, they might ask if the company has “Director and Officers Insurance” (D&O Insurance). This is insurance that protects the director from having personal liability in case the company gets sued. Small companies cannot afford D&O insurance (in fact, most private companies cannot afford this), while most public companies must have this as a requirement of the underwriters in an initial public offering. So, when confronted with the question, the best solution is to make sure that the articles of incorporation of the company provide the directors with the highest limitation on liability afforded by the state the company is incorporated in. Don’t waste your time investigating D&O pricing – it won’t be economical.
Finally, take good care of your board members. These are busy folks that are making a substantial time and energy commitment to you. They share in the rewards if you are successful, but their time and energy is at risk since their primary form of compensation is equity in your company. Feed them. Make them comfortable. Have fun together! You’ll be pleasantly surprised how much faster the relationships evolve and how much more valuable they become when everyone is working hard, but having a good time together. Don’t ever let your board get bored.
This article can be found on the Kauffman Foundation’s Entreworld web site at the following link.
Over the past two years I’ve been struggling mightily with the dynamics of “classical VC funded board of directors” and how these boards work. When I hear a VC say “I’m an active board member” it gives me the same nauseous feeling I get when someone says “I’m a value added investor.” I’ve been on some awesome boards, some terrible boards, and everything in between. Today, I refuse to be on a shitty or dysfunctional board and I’m proud that every board I’m on is one that I’d consider to be effective, although they all operate in different ways.
I’ve experimented with a bunch of different approaches across a lot of boards and have been thinking hard about this lately. I’m working on a book called Startup Boards with Mahendra Ramsinghani and have done some interviews about this topic lately, including a chaotic one the other day with James Geshwiler on the Frank Peters Show.
My long term friend Matt Blumberg (Return Path CEO) and I were going back and forth about his recently board meeting (which ironically I missed) and he wrote some kind words about me and his other board members (Fred Wilson – USV, Greg Sands – Sutter Hill, Scott Weiss – A16Z, and Scott Petry – Authentic8.) I asked him if he’d write a guest post about what makes an awesome board member. He was willing – it follows.
I’ve written a bunch of posts over the years about how I manage my Board at Return Path. And I think part of having awesome Board members is managing them well – giving transparent information, well organized, with enough lead time before a meeting; running great and engaging meetings; mixing social time with business time; and being a Board member yourself at some other organization so you see the other side of the equation. All those topics are covered in more detail in the following posts: Why I Love My Board, Part II, The Good, The Board, and The Ugly, and Powerpointless.
But by far the best way to make sure you have an awesome board is to start by having awesome Board members. I’ve had about 15 Board members over the years, some far better than others. Here are my top 5 things that make an awesome Board member, and my interview/vetting process for Board members.
Top 5 things that make an awesome Board member:
- They are prepared and keep commitments: They show up to all meetings. They show up on time and don’t leave early. They do their homework. The are fully present and don’t do email during meetings.
- They speak their minds: They have no fear of bringing up an uncomfortable topic during a meeting, even if it impacts someone in the room. They do not come up to you after a meeting and tell you what they really think. I had a Board member once tell my entire management team that he thought I needed to be better at firing executives more quickly!
- They build independent relationships: They get to know each other and see each other outside of your meetings. They get to know individuals on your management team and talk to them on occasion as well. None of this communication goes through you.
- They are resource rich: I’ve had some directors who are one-trick or two-trick ponies with their advice. After their third or fourth meeting, they have nothing new to add. Board members should be able to pull from years of experience and adapt that experience to your situations on a flexible and dynamic basis.
- They are strategically engaged but operationally distant: This may vary by stage of company and the needs of your own team, but I find that even Board members who are talented operators have a hard time parachuting into any given situation and being super useful. Getting their operational help requires a lot of regular engagement on a specific issue or area. But they must be strategically engaged and understand the fundamental dynamics and drivers of your business – economics, competition, ecosystem, and the like.
My interview/vetting process for Board members:
- Take the process as seriously as you take building your executive team – both in terms of your time and in terms of how you think about the overall composition of the Board, not just a given Board member.
- Source broadly, get a lot of referrals from disparate sources, reach high.
- Interview many people, always face to face and usually multiple times for finalists. Also for finalists, have a few other Board members conduct interviews as well.
- Check references thoroughly and across a few different vectors.
- Have a finalist or two attend a Board meeting so you and they can examine the fit firsthand. Give the prospective Board member extra time to read materials and offer your time to answer questions before the meeting. You’ll get a good first-hand sense of a lot of the above Top 5 items this way.
- Have no fear of rejecting them. Even if you like them. Even if they are a stretch and someone you consider to be a business hero or mentor. Even after you’ve already put them on the Board (and yes, even if they’re a VC). This is your inner circle, and getting this group right is one of the most important things you can do for your company.
I asked my exec team for their own take on what makes an awesome Board member. Here are some quick snippets from them where they didn’t overlap with mine:
- Ethical and high integrity in their own jobs and lives
- Comes with an opinion
- Thinking about what will happen next in the business and getting management to think ahead
- Call out your blind spots
- Remembering to thank you and calling out what’s right
- Role modeling for your expectations of your own management team
- Do your prep, show up, be fully engaged, be brilliant/transparent/critical/constructive and creative. Then get out of our way
- Offer tough love…Unfettered, constructive guidance – not just what we want to hear
- Pattern matching: they have an ability to map a situation we have to a problem/solution at other companies that they’ve been involved in – we learn from their experience…but ability and willingness to do more than just pattern matching. To really get into the essence of the issues and help give strategic guidance and suggestions
- Ability to down 2 Shake Shack milkshakes in one sitting
- Colorful and unique metaphors
Disclaimer – I run a private company. While I’m sure a lot of these things are true for other types of organizations (public companies, non-profits, associations, etc.), the answers may vary. And even within the realm of private companies, you need to have a Board that fits your style as a CEO and your company’s culture. That said, the formula above has worked well for me, and if nothing else, is somewhat time tested at this point!