I hear much reported on the dysfunctionality of growth stage company boards and board meetings by investors and entrepreneurs alike. They often give the appearance the situation is out of their hands or even worse, out of their control.
Many commentators report that board meetings become information dumps from management to a select group of shareholders. Boards and the chair need to create a productive culture where they don’t spend their time counting pencils or other mundane activities often associated with early and growth-stage company boards.
In my last post, I espoused on the benefits of separating the role of CEO and a non-executive chairperson or lead director of a board of directors. In this post, I will discuss the importance of this role and the seriousness of the responsibilities taken when one assumes this role.
It is recommended that a non-executive chair must be selected by an independent process that includes a nominating committee that has a majority of its members as independent directors. Ninety-seven per cent of the S&P 500 companies appoint a lead or presiding independent director. This person should be an independent director in order to have the moral right to lead and have a significant impact on the company.
It goes without saying the effectiveness of this structure depends on the communication between the two individuals in these roles. The role of the non-executive chair is not to run the company, which is the sole domain of the CEO; however, the CEO reports to the collective board and specifically the compensation committee for performance. The chair is integral to the talent management process for the board ensuring there is proper recruitment, selection and orientation process for all board members.
Here are some of a non-executive chairperson’s roles and responsibilities:
1. That a board meeting agenda is set and adhered to, on point, productive and functional
2. That there is open dialogue and a diversification of views by directors
3. Ensuring directors are prepared in advance for meetings
4. That there is a process of evaluating the success and achievements of the meeting
5. To ensure the board has the KPI’s to measure its impact on contribution to the company achieving its goals
6. Well-structured committees are appointed with the appropriate skill composition to conduct the heavy lifting on specialized topics such as audit, risk, compensation, governance, etc.
7. A consent agenda is used for administrative items to ensure the meeting doesn’t get bogged down
8. Ensuring resolutions are passed by email that don’t require extended discussion
9. Ensuring directors are aware of their duties and that there are documented mandates for the board and its committees
10. Ensuring the board is populated with industry and functional experts
11. Ensuring directors’ and officers’ insurance is in place and that directors are aware of their liabilities and whether the company has provided an indemnity to the directors
12. Ensuring the board has independent directors in their position and thought process
13. Ensuring there is a orientation process for new directors
14. Ensuring there’s a process for board member performance evaluation
15. Ensuring inexperienced directors have an opportunities for outside training
16. Ensuring directors are in attendance at quarterly meetings
17. Ensuring board observers are functional contributors
18. Planning an annual board strategic renewal exercise
19. Ensuring independent directors meet in executive sessions without the CEO
20. Ensuring there is board and key officer succession planning
The chair has to ensure that the board and its meetings don’t become a:
1. Training ground for the staff of a VC or other investors
2. Place where management are on the defensive
3. Controlled agenda by a few participants
A true test of the success of a board meeting is whether the mission and strategy of the company been advanced. The responsibility of the board is to focus on the strategic direction of the company, ensuring the CEO’s feet are held to the fire, that his or her performance is evaluated against a defined set of KPIs, and that strategy is foremost in the CEO’s mind.
The chair’s responsibility is more profound in a private corporation in the growth stage, where the very motive of the company invites disruption and, at many times, dysfunctionality. Often times the Chair must deal with predatory terms of investors’ term sheets, such as allowing no decisions to occur without a single director being there.
However, private corporations don’t have to comply with the reporting rigor of a public company. They still remain responsible to all their shareholders, notwithstanding they owe their fiduciary duty to the corporation.
You will have observed from these sets of responsibilities why I and many others recommend the separation of CEO and board chair, especially for private growth companies where human resources are thin. Although much of my opinion is based on my experience as a chairman of a private corporation and not-for-profit organizations, many of the attributes, roles and responsibilities of a chairperson apply to public corporation boards.
If you are on a board to be liked, honoured or to fill your résumé, you will find yourself ineffective and not serving much purpose – but when investors believe your company is well run with a functional governance structure, they are more likely to support the company and be there for follow on investment rounds.