Selecting your next Board member

I have probably spent a year of my life just in Board meetings- either as a management attendee or as a Board member. Most of that time was invested usefully, but there were occasional dysfunctional Boards, typically with one Board member causing most of the problems. IN the third in our series about Boards of Directors, I’ve written about unlocking talent within Boards, and explaining what Boards do, here we’ll explore how to select the right Board members.

I have also been involved in the process of selecting new Board members and as I am starting a series of posts about Board of Director issues let me create a post to discuss board membership. This will run long, and so if boards of directors isn’t your thing, yet, please don’t spend your time wading through this.

As a Board member of some small and some large, independent and publicly listed companies, I have seen a range of Board members in the last ten years. I can say that a  great board member can add enormous value and truly be helpful to the company. Equally, I’ve seen that a terrible board member can truly screw a great company up (through misdirected focus, undue attention on inessential things, creating work for the sake of creating work, asking questions to seem intelligent despite the answers having no use to the business). Most board members are neither great nor terrible – but this post will hopefully help you avoid the terrible ones and hire some potentially great ones.

Lets start assuming you are the CEO a new company seeking independent advice and counsel for the first time. What should you do in the start for finding great independent advice? (This advice can easily be applied to existing Boards, so if this is you, please read on)

A written job specification for one of the most important people you will hire is essential. You should write up what you would optimally want for a board member as a check list. This could include the following:

a. Operating experience. Do you want someone who has operated a company at a certain scale or has started a company themselves? Can they share process or management best practices with you? What can you learn from them?

or. Market experience. Is there specific domain expertise or market knowledge you care about at the board level? Are there ways that a Director could give you a competitive advantage? Can they provide intros to people in the market who can help you a lot? Do they have links in countries you wish to expand into or export to?

or. Functional experience. Do you want specific functional experience? (e.g. an ex CFO or VP International Sales)?

b. Empathetic.  If you are new company, consider inviting onto the Board someone with involvement with other young companies (optimally as a Founder). People who have not seen a company go from 2 people in a coffee house to a multi hundred person company aren’t used to all the bumps in the road that an early stage company experiences. Things will take longer and will be rougher than expected. And, unlike a large established company, momentum won’t exist.

Optimally, if there is just 1 independent board slot, the independent board member would be a current or former entrepreneur as this is the prime support you’ll need. Other successful entrepreneurs will be able to relate more closely your predicament and provide advice based on their own experiences. They will know that you “stupid question” isn’t all that stupid for a perosn in your situation. Finally, if you have investors as board members, a successful entrepreneurs can serve as a counterweight to their purely financially driven perspective.

c. Personal rapport and attitude.
This is REALLY important. You as the companies leader you should seek to have great personal rapport with the independent board member. They should be someone you feel you can trust, who you would feel good about calling at midnight on a Friday. The independent board member should be someone you feel comfortable calling up to ask a dumb question about your business. They should be someone that if circumstances were different, you would be excited to start a company with them.

d. Alignment of vision.
Does the independent board member understand where you want to take your business? Are they aligned with that vision and direction? You want a common view of where the industry will evolve, and someone who will support that vision rather than second guess you and your plans. Similarly, you want someone who will take a long term view to building a great company (if that is your intent), rather then a focus on a short term boost and sell.  How can you tell? Well, look at their background – what has happened to the companies they have started or run? Did they sell early, and if so why? What other choices have they made in their career, and how thoughtful are they in hindsight about these decisions?

e. Intelligence.
This is self explanatory, you’ll need someone who can cope with your industries demands.

f. Independent and Respected.
Maybe one of your investors or financiers will suggest a friend as your independent board member. These people will often owe them more than they will ever owe your company, and when things get tough will support those who appointed them. Avoid having the independent seat falling into the hands of others on the Board.  Part of the independent board member’s role will be to remind all board members that they should be voting in the company’s best interest (rather than their personal best interest). They should have the confidence and insights to push back when it makes sense to do so. The independent should help keep the rest of the Board “honest”. This does not mean the independent should rubber stamp your every whim. Rather, they are there to do what is best for the company and to remind the Board that their purpose should be the same.

Characteristics to avoid;

The condescending grey-haired operating executive who sees themselves as adult supervision. This typically leads to the founder getting fired as CEO and some manager coming in to create more efficiency but ultimately derailing the company (such as Steve Jobs being fired from Apple and John Scully from Pepsi replacing him). Avoid the micro-manager who confuses being on the board with being your boss. Avoid people doing it for the potential financial reward rather than impact/excitement about helping you build a business.  Avoid people doing it to “join a board” so they increase their own personal stature.

 

Given the importance of rapport and trust in the board relationship, you should make sure to get to know people (optimally over a few months or longer) before adding them to your board. As such, you should push back if any other bpoard members wants to quickly appoint someone.

Once you have defined what you want, discuss it with the rest of the Board and get agreement on the spec. This helps you negotiate through the candidate you and they propose.

Make a prioritized list of people you would most like to add to the board. If you do not know them directly, contact them via your Board members or other contacts. A lot of people will reply to a random ping on LinkedIn or AngelList if it seems serious and you have good investors. Your investors may have good suggestions for this list as well.

You may have a lot of pressure from your investors and other Board members to finalize the board. You should push back on this and make sure you take the time (months) to find a great person to join. Just as you would not rush to hire a crappy engineer “just to fill the spot”, with a board member (who will be more troublesome to remove than a bad employee) this becomes even more important.

Here are some questions to ask prospective Independent Board members to assess their suitability;

– What do you feel the  key directions for the company are? Do their views align with the vision and approach you want to take? Do they have key insights or interesting feedback?
–  How they will help the company. Where do they think they will they pitch in? What do they think they are good/bad at providing and how does this match with the needs identified above?
– What are their goals/aspirations? What do they want to do with their career or life? How does the role on your board impact this?
– Up front ask them to do something for you. Try to put them to work to do something small and see if they will help even before they are on the Board. This will assess their willingness to pitch in. But make it something relevant that they are experienced in.

Compensation

Your new Board member will need to be recompensed for his time and energy. Unlike non-independent members (representing management, investors, other shareholders) who’s compensation is paid by those who nominate them, Independent Directors need to have specific remuneration. I would suggest payment of all (reasonable) costs associated with attendance at the Board, and either a per diem for attendance or a fixed fee. This is not huge say in the thousands. This ensures they are obligated to give you their time and focus. If you are a small company and may not be able to pay cash, why not award shares based on the companies performance to the Independent members of the Board, liable to be cashed in at some future time to ensure an appropriate focus.

After assessing their suitability yourself, ask around. What do people who have worked with them think of them? Are they high integrity? What are the helpful at? If they are already on boards, what do the entrepreneurs they work with think of them?
So having selected the person, how do to add them to the Board, whats the process.  How about something like Management recommends then the Board approves/disapproves. This ensure that the balance of power lies with the nominator (you) and if they don’t like who you have recommended, you get to find a replacement.

In summary, choosing your board members will be one of things that will impact the future of the company substantially. You should be thoughtful about who you are adding and why, and work with your investors to take the time to be thoughtful about who you add. Once someone is on your board, they are very hard to remove.