Startup 101 - Composing your Board of Directors

As a founder, one of the critical yet often overlooked tasks is forming your board of directors. Picking the right composition of your board is the difference between having a functional company that is productive and competitive, and those that are deadlocked and hampered by greedy, self-interested individuals that make the process of decision-making near-impossible.

Your board of directors need to serve as promoting and helping execute the vision of the founders, rather than encumbering. They need to provide insight and guidance, help the young entrepreneurs navigate with the knowledge and expertise they have learned over time, which is in their interest, being the ones that have thrown money at your company.

Just as you would pick developers and engineers that build synergy in your team, the same needs to be said of directors. Being smart about your composition, the numbers, as well as who gets represented is critical, as you will be spending lots of hours in the office, and just like the need to be able to get along with your other founders, the same applies to your board. So how do you compose your board of directors?

Whom should sit on the board

Your board of directors can vote, so you need to have the right board member, that complements you, she or he is able to share your vision, and trusts you. That person needs to bring experience to the table, and diversity. If they are in finance, investor, legal, and more importantly, they can offer their expertise on those on the board, and provide particular advice. They could also be the type that are well-connected, and know how to navigate Silicon Valley, and have networks to tap on to.

Don't have people who don't actually provide distinctive skills and just occupy a chair, but rather focus on getting people that together, can provide the wealth and depth of knowledge to cover vital operational matters.

Your board of directors need to trust you, as CEO, to executive your vision responsibly. They fell for your pitch deck, and while they can provide their expertise on other matters (such as legal or financial), they can provide oversight but without the ball-and-chains. Another important thing directors can bring is outside perspective, that are independent. They don't necessarily have to be an investor of your company but can bring an outsider's perspective to the table,

Terms and By-Laws

Board of directors should normally serve for around 3-4 years, so setting a term-limit to that long allows for an appropriate refresh of the board's brains trust, rather than recycling the same personalities and their knowledge. There should also be clear deliniated division of responsibility and powers as far as decision-making goes.

"When writing bylaws, you should be sure to clearly state who has the ultimate authority for making decisions about the company, whether the advice of the board is binding, and whether things like compensation or employment decisions are the board's responsibilities or fall with the company's management team." (source: entrepreneur.com)

Don't Compose a Bloated Board

The size of the board, like government shouldn't be massive. Too much of a democracy can hinder decision-making, so choose to have the right size of people serve on the board. Generally, you have common directors which represent the common stock and it's shareholders, so in this case, one or two of the founders.

When you raise money, you then would have preferred directors, representing your preferred stockholders (preferred stocks) consisting of lead investors and make decisions serving the interest of the investors. You would probably want to limit how many of these you have, to one or two.

Independent directors are outsiders that come in with an outside perspective on helping decisino making. These would be those that we mentioned earlier, such as attorneys, technology experts, ex-entrepreneurs. They should not hold any stock in the company, but rather help push decision-making along, and help break the deadlock in the board-room. Around 2-3 perhaps.

"As for the size of the board, business professionals say there isn't one answer that will suit all companies. Most recommend having a body between seven and 15 members, but the important thing is to make sure to find the right balance for the size of your company. If the body is too small, the board won't have a diversity of opinion; too large and it could get unwieldy and difficult to organize. " (source: entrepreneur)