You’ve read my post on the benefits of having a board in your closely held company, and you’re convinced. You’re ready to move forward but stuck at step 2.
How do you go about putting a board together? For most companies, major investors push for governance rights and the structure of the board becomes an element of each fundraising term sheet. But we’ve already stipulated that that’s not your situation.
Where can I find board candidates?
Here’s the advice I give clients:
1. Start with your professional advisers. You’ve already chosen to trust them with all your information, so there’s no dating period necessary here. You can slot them into a board meeting with minimal effort. Corporate lawyers, in particular, are common attendees at board meetings in any case.
2. Skilled, experienced lawyers and accountants often have advice to share beyond the four corners of their disciplines.
3. Get referrals from your peers and advisers
4. Go to a mastermind group or similar small-group networking or forum sessions with similarly situated people (people with similar roles at roughly analogous companies but ideally with a little more experience than you).
5. Once your company is larger, you should be able to use your personal network (again, including your advisers) to identify specific people with the right skills, experience, and attitude.
What should I look for in a director?
After you have some names in front of you, what should you look for? There are two answers: the first has to do with skills and the second with character.
If you think about your skills and those of your team, you should lean toward finding board members who have skills that you don’t. They can give you advice that comes from experience – a shortcut to wisdom and learning things the hard way. For example, if your primary strengths are creative and sales-oriented, you might look for an adviser who understands financial analysis and financial modeling. If you’re a tech person and work excel like it’s a command prompt, you might want someone with sales experience or leadership skills.
After the skill factors, what should you look for?
You really want someone with moral courage – the ability to tell you what they think and the character to do the right thing. Since you’re less likely to make them actual board members, under the circumstances we’ve described, there are no fiduciary duties to impose the obligation to act with due care. You will be filling that gap with character.
Next, you should look for someone whose judgment you’d respect. You don’t have to always agree with the person or adopt it wholesale (that’s little better than a director who just kowtows to you), but you should be in a position where if that person disagrees with what you think, you’d take that seriously and use that information meaningfully. What that means is that you’d dig in and figure out where there’s a disconnect. If there’s a disagreement about the facts, it should be easy to fix that, regroup, and re-decide. If there’s a disagreement about assumptions, that’s the real benefit that you’re looking for. Among many possible solutions, using some of the lessons from scenario planning might lead you to identify specific signs that the assumption are, or are not, as anticipated, and you might also develop a contingency plan on what to do if the assumptions turn out not to be true (instead of waiting for the world to turn against before thinking about what to do).
Finally, you should look for someone who’s good at deconstructing problems. In my short bio, I refer to refactoring complex problems (admittedly, “refactoring” is a wink to my tech clients who will see that I speak their language), but I’ve also described is as deconstructing complex problems. What you want a director to be able to do is to take a seemingly complex problem and simplify it by breaking it into component parts, assumptions, and irrelevant elements. By doing that, you will improve decisiveness. In some cases, you can isolate a question or unknown fact in a problem, and you will find that your course of action will be the same regardless of the answer to the question or whether that fact is a yes or a no. That’s what decisiveness looks like in the wild, and it’s a trait you want in your board members.