Joining a Board of Directors

January 5, 2012

A former colleague recently reached out to me with the following question:

"I'm interested in getting board experience but am not sure where to start. I've served on a local non-profit board but wondered if you have suggestions for finding opportunities to serve on company/corporate boards?"

Like many, this person is senior with many years of experience and is likely planning their exit into semi-retirement. For people in this position, Boards can be an attractive way to ratchet back from a full time commitment while remaining active, productive and hopefully making some money. For most, it is also part of fulfilling a desire to lend their accumulated experience and give back to the corporate community.

Unfortunately, the Board experience may not be the panacea that it seems to be on the surface. There are lots of reasons for this, ranging from CEO's or Founder's that don't value or listen to their Board to just bad companies that don't deserve the investment of good Board resources.

So, for what it is worth, here is an edited version of my advice to them. My comments are based on my observations with private, tech start-up companies.

My experience is that most Board positions come through either your network or an introduction by a 3rd party who is connected and trusted by both the Company and you. Sometimes, the connection is through VC's, Angel investors, or Auditors so make sure you establish your network to include them.  I would agree that that based on your background, your strongest fit would be with a small private software or boutique professional services company that is looking to add operational advice by bringing talent onto their Board.

A few things to watch for:

  • Board positions are as much about culture and trust as they are about expertise and experience. This goes both ways. The candidate needs to do due diligence on the company because Board Directors are assuming legal liabilities when they join, so make sure you fit their culture and have confidence and trust in the senior leadership team. You should also ensure the company has Director's Insurance.
  • Select or disqualify companies based on whether you believe the CEO is coachable. If they don't listen, don't touch them
  • Understand why they want you on the Board (skills fit, experience fit and time commitment). If you can't figure out what your value proposition is to them in terms of advice and guidance, don't join. Don't leave it to them to figure this out.
  • Once you have figured out your value proposition, get their agreement. They may not agree with your value proposition, may not think they have a problem, or may not want you sticking your nose there. If so, don't join the Board.
  • Determine if the Board is active or passive? A passive Board is one where the Directors meet once a quarter for two hours. Don't waste your time on these. The liability you are assuming is too great and the impact you will have is too little relative to the risk you are taking. You will never get close enough to influence the outcome or protect your ass from something bad happening. If the Board is an active Board, you want to be talking with or meeting the CEO or COO or other executives at least once a month and trading emails regularly.
  • Compensation: if you are on an active Board, you should be expecting equity or options plus some cash otherwise why bother joining. Depending how tiny the company is, there will probably be more equity and less cash.  I ask for some cash compensation because it is an indicator of whether they are really interested in having someone advising them.
  • When choosing a company, you need to adopt an investor's mindset and think like someone investing cash into the company. Are they capable of raising their next round of capital if necessary? Is their management team investable? What is their exit strategy? How realistic is it? Can you see multiple possible exits and buyers? If not, you may make the company successful but never get your money out.
  • Who are the other Directors?  What value to they bring? Do their skills and experience all fit together to give a complete business portfolio of skills? For example, I am not a strong Finance and Accounting guy so I look for an Independent Director on the Board who is a current or ex-CFO. In other words, is someone on the Board qualified to know what the company is doing from an accounting and government compliance point of view to protect the rest of the Directors?
  • Finally, a good acid test is whether I would consider this company worthy of investing into with my own money? If it is, then it is worthy of my time. If not, I don't join.

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