CHAPTER THIRTY-TWO

THE VALUE OF A GOOD BOARD

I know a number of CEOs who dread their boards of directors. They roll their eyes when they talk about preparing for board meetings or sitting through them. They fear a loss of control. They have an image of boards as a collection of grumpy old men in a smoke-filled, wood-paneled room, banging a gavel, calling for motions and votes and generally following Robert's Rules of Order. The board of your startup doesn't need to be that way. If you build and manage it correctly, it can be an incredibly valuable asset to your business.

WHY HAVE A BOARD?

Why have a board? Well, for starters, most states require you to have one, although you could be the only member. Eventually, if you take on outside investors, you will need to have a board that represents all shareholders, not just you and other founders and employees. (There are also some good technical and legal reasons to have a board and those are covered well in Brad Feld and Mahendra Ramsinghani's forthcoming book, Startup Boards.)

Even if you technically don't need a board, there are plenty of good reasons to have one.

Everybody Needs a Boss

We are all accountable to others for our work in one way or another. Unless you're the rare startup CEO who owns 100 percent of their own company and doesn't grant employees any options, you have other shareholders. Creating a board of directors is a good reminder that you have a boss—and that you have to play by the rules and maximize value for all shareholders. Accountability is crucial. Think about it this way: no matter how much you loved your favorite class in college, how many papers would you have written if your professor hadn't assigned them and given them due dates?

The Board as Forcing Function

A board can help you run your organization by creating a cadence of regular, recurring deadlines. Unless you're in a business that has significant external deadlines imposed on it by partners or customers, it can be difficult to pick deadlines for projects, drive your team hard to meet those deadlines and keep those deadlines from slipping. Your team knows that many deadlines are arbitrary. By making a commitment to your board that something will be done by a certain date, you raise the bar and remove much of the arbitrariness from the decision.

You can also use the board as a forcing function for quality. Sure, a CEO of a small company can read someone's scribbled bullet points or a half-baked spreadsheet. However, if you are presenting the same information to your board, you will polish it up, which will force you to think through what you are presenting.

Pattern Matching

Good board members are really strong at pattern matching: seeing a chain of events or metrics about your business, matching it to one or more comparable situations they have seen in the past, then providing advice, context, history, or a connection to another CEO. I've found this to be true in terms of both strategic issues and operational ones. As Mark Twain once said, “History does not repeat itself but it does rhyme.”

Forests, Trees

A good board will help you see the forest for the proverbial trees. You're close to your business and in the weeds of the day-to-day. Your board isn't. As a result, board members can sometimes point out things that you completely miss when looking at your operating results, your staff or your own performance. They may be obvious in hindsight but someone has to give you that rearview mirror.

Honest Discussion and Debate

Finally, provoking, listening to and participating in the discussion and debate at a productive board meeting can be one of the most valuable things you do in a given quarter. Sometimes even great and fearless executive teams are wary of disagreeing with a strong CEO. A great board isn't. A healthy board discussion will push and challenge you and your team's assumptions. More than that, individual board members should push and challenge each other.

While the board can have dramatic impact, you never want your team to think the board runs the company's day-to-day operations. Any time you hear an employee say something like “Oh we have to do that because the board told us to,” you should gently remind him that you and the management team run the company, not the board.

I know a couple of CEOs who didn't need to have a formal board of directors based on their corporate structure and ownership. They elected to have boards and each one of them considered his board a key asset to the business and felt accountable to the board, even if those boards didn't necessarily have the power to fire the CEO.

As a final note on this topic, some companies have an advisory board instead of a board of directors in the early days but there's no reason you can't have both moving forward. However, advisory boards tend to be much less formal—and much less helpful.