Working with Your Board of Directors

By Frank Demmler

One of the things that comes with an investment is almost always the creation of an active board of directors to which the investor is elected.

The reactions of first-entrepreneurs range from,

• “Great! I need all the help I can get,” to
• “What’s a board and what does it do?” to
• “I don’t need anybody looking over my shoulder and second guessing all of my decisions.”

The first time you do this you’ll probably have a bit of each running through your head.

Your Board of Directors

Your board should be a tremendous asset to you and your company. Let’s be honest, you’re probably doing a lot of “business things” for the first time. For high growth rate companies, the cost of tuition for on-the-job training is likely to be too high. The company can’t wait for you to learn your job as CEO by trial and error. Decisions need to be made. Strategies need to be formulated. Key management additions need to be recruited. The next round of capital needs to be raised. Oh, yeah, you’ve got a business to run and you may be doing that for the first time, too.

Corporate governance

The legal role of the board is to look out for the interests of ALL shareholders. Even if you own a majority of the stock, your board cannot and will not just rubber-stamp your requests. Each board member has a fiduciary responsibility, and liability, for assuming this role.

Among other things, the board does hire and fire key management, including (or especially) the CEO.

Strategic discussions

Your company is going to come to lots of intersections on the road to its success. Sometimes the path you choose will be irreversible, and if it’s the wrong one, your company will falter, and perhaps fail.

If selected and used properly, your board members, drawing upon their expertise, contacts, and experience, can help you avoid fatal steps and make the proper decisions. [Note: I originally wrote “right decisions,” but there are no “right decisions,” only best decisions appropriate to the current circumstances.]

Your board meetings will provide forums to review these issues, share experiences, discuss and evaluate the alternatives, and come to appropriate conclusions.

Anticipating & preparing for future issues

Another key role for the board is to anticipate future issues and prepare for them. As noted in the opening of this article, you are probably doing this for the first time. You’re having enough of a challenge dealing with the here and now. You have neither the experience nor time to give a whole lot of thought to future issues.

That’s where your board comes in. They can anticipate the type of financing you are likely to need in the future and begin the process of introducing appropriate investors to the company. They can see the trajectory of the company’s progress in product development, sales, business development, and anticipate the areas that do, or will, need bolstering.

What A Board Meeting Is NOT for

One of things that continues to surprise me is that many board meetings that I have participated in or observed, have been largely a waste of time.

Information exchange

Board meeting are not for information exchange. You need to prepare and distribute a board pack (a collection of reports, charts, graphs, narratives that informs and educates the board members on what the company has done since the last meeting).

YOU SHOULD NOT REHASH THE CONTENTS OF THE BOARD PACK. If you got it to the board members with sufficient time for them to review it, assume that they have done so. Treat them with the respect that reflects your regard for their professionalism (by being prepared), and sensitivity to the importance of their valuable time. [Note: if one board member is not prepared, the others are, and the lack of preparation is obvious, it won’t happen a second time.]

Surprises

Board meetings should not contain surprises. In my experience, first-time entrepreneurs often assume an “ostrich posture” with regard to problems: they bury their heads and hope the problem will go away. It won’t.

If there’s a possibility that a problem of board significance may arise, tell your board members as soon as you get any inkling that it may actually happen. Whenever there’s a significant surprise, good or bad, anticipated or not, tell your board.

“I can’t do that,” you may be thinking. “The board will question my ability as CEO.” No, they won’t. They will think that you are a sophisticated CEO, confident in your own abilities, and that you are wise to keep them informed about important issues, and to seek their counsel when appropriate.

Common Mistakes

Board meetings should be important forums in which critical issues for the company are discussed and decisions made. They often aren’t. Here are a few of the common mistakes, I’ve seen and, on rare occasions, contributed to.

“Get the little things out of the way”

I can’t count the number of times that board meetings start off with a series of trivial subjects, so that “we can get them out of the way.” More often than not, these “little things” consume the bulk of the meeting’s time, and important things aren’t addressed, or at least not adequately.

This is not to say that important “housekeeping” items shouldn’t be dispensed with at the beginning of a board meeting. Assuming that you have distributed the material in advance, calling for the approval of the prior meeting’s minutes; approval of corporate resolutions that had been discussed previously, and put into legal form between meetings; approval of stock option grants that the board authorized you to offer to a prospective employee; and other similar things do need to be taken care of and can be dispensed with in a matter of a few minutes.

Starting with detailed financial statements

It is important to share the cash position of the company and how the company is performing against plan with the board. These can often be handled with two summary graphs or charts. If things are generally, “OK,” move on.

Too often the detailed financial statements are the focus of this discussion, and all of a sudden 30 minutes have gone by talking about things like, “Gee, your phone expense looks high. What carrier are you using? … Well, we’re using ABC Phone Company and we got such a deal! You should check it out.”

That’s not what a board should be doing.

No time discipline

If you’ve selected the right board members, they are very busy people with many demands placed upon their time. If your board meeting is scheduled to last two hours, that’s what they have allotted for it. They will need to leave at that time, and you are showing disrespect if you don’t cover everything that you need to and/or try to get them to stay longer.

Set an agenda, including time benchmarks, and stick to it.

No call to action

The reason that the members of your board have joined is because they want to help your business and believe that they can make contributions to it. Yet, many board meetings end with everyone having had a pleasant time, lots of information and experiences exchanged, but nothing substantive has occurred.

You should always have one or two substantive topics on your agenda. It’s often a good idea to have an advance schedule of functional departmental reviews over the course of a year, normally one per meeting.

Sequencing through areas like sales, marketing, engineering, and operations, permits considered reviews of:

• What is the department doing today?
• Is that appropriate and adequate to meet the company’s current needs?
• What will be the future needs of the company?
• Is this department on track to meet those future needs?

Make sure you ask your board for their assistance in key areas and you will be surprised by what they can contribute.

Advice to entrepreneurs

• Use your board as an asset.
• Schedule board meetings well in advance and etch those times and dates in stone.
• Communicate frequently and within a timely manner with your board members.
• Get the board pack to them at least a week in advance.
• Include YOUR (don’t let the finance person write it) transmittal letter that summarizes the progress of the company, and frames the upcoming board meeting by introducing the topics you believe are most important to discuss, and include an agenda that reflects the relative importance of the topics.
• Talk to each of your board members, by phone, at least twice between board meetings.
• One time within a week after the board meeting to debrief the board member.
• One time after you’ve drafted your transmittal letter and agenda, but before you have distributed the board pack, to solicit each board member’s recommendations.
• As often and as quickly as possible when “surprises” are imminent, or have occurred.
• Treat your board members with the respect that they deserve and they will respond in kind.

Frank Demmler is Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University. (Website) Previously he was president & CEO of the Future Fund, general partner of the Pittsburgh Seed Fund, co-founder & investment advisor to the Western Pennsylvania Adventure Capital Fund, as well as vice president, venture development, for The Enterprise Corporation of Pittsburgh.