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It is never easy for CEOs to select their board of directors. It is the board’s job to question you, your choices and even advice you on how to do things. As an entrepreneur setting up a high-growth business, it is easy to resent that kind of intervention.
But think Satyam. Think what the directors, at what was one of India’s top IT companies, did - or, more importantly, didn’t do. Satyam had its share of luminaries from business and academia to advise it. And yet India’s largest-ever corporate fraud happened in the same company.
If that wasn’t bad enough, the economy has turned on you as well. A turbulent economy and precarious capital markets call for robust leadership that can steer your company through such volatile times. These are also times when the responsibility of the board increases. Your board can help you become more efficient and also represent you before potential investors. Therefore, the selection process for your board is crucial. Here are a few tips to help you get your board right:
Make the real choice
While picking your board members, you need to be as conscientious as you would have been if you had the chance to select your own family. After all, these are the people who will actually hold the reins of the company. Insist on people who have real business experience – and not just academics and gurus.
As an entrepreneur, you will be better off having someone who has run a business, or better still, built it successfully from scratch. These are not always easy to find. Moreover, often investors insist on one of their own team on the boards of their investee companies. Just remember that while an ex-consultant or banker may look good on your board, he will not be of much support to you in making trade-offs or judgment calls in real business problems.
Do not restrict yourself to choosing members from the same industry or community. Though unusual, professors and journalists often prove to be valuable board members because they are highly unconventional in their thoughts and approach.
Another factor to keep in mind is availability. For a board to be effective, its members have to participate fully. People who serve on many boards are best avoided. In all probability, they will not be available when your company needs them the most.
Skill masters
It is easy to fall prey to the “trophy” syndrome and collect celebrity names for your board. But it is wiser to choose your board members based on their skills rather than the status they enjoy in the corporate world.
However tempting it might be to fill up the board with big names, think of achieving a balance between four broad skill requirements: strategic, operational, organisational and risk-management, which should include compliance and risk governance.
In most entrepreneurial ventures, it is difficult for owners to understand and tackle all aspects of business, and also be a great leader. Hence, while choosing board members, it is important to consider the expertise they bring in and look to draw up a collective pool of balanced resources.
Networking is another skill you might look for. It never hurts to have resourceful board members who have a wide network of contacts that they can tap into for acquiring future investors, strategic partners, or even potential customers.
The right mix
An effective board usually comprises five to seven well-qualified and experienced members, who have preferably been through the entrepreneurial process and have a clear understanding of common operating issues. The right mix is of about 75% outsiders with one or two seats reserved for internal top managers.
Try resisting from the common practice of inviting friends - or people well-known to you - to join your board. This essentially makes your board ineffective. The board member, as a friend, may find it difficult to perform the role of an independent director. Instead, ask your friend, or investor, to give a recommendation for your board. That degree of separation will ensure certain amount of independence.
Divide and rule
It is important to divide the board into distinct committees, having well-structured agendas, and to select the right people to head these committees. To start with, carve out the compensation and audit committees. You could also toy with a risk management committee, as different from the audit one.
While thinking of people to head these committees, opt for specific skills. An audit committee, which is supposed to guard against governance and accounting pitfalls, needs someone with a chartered accountancy degree or a CFO background. Similarly, risk management requires someone with broader skills than simply financial risk.
Judicious compensation counts
To put together a great board you need to expand your horizons and not restrict your search to local industry leaders. Hence, be prepared to pay for travel expenses. At a directorial level, compensation is more a measure of worth than a means to an end. Therefore, a token stipend or company stock packages should work well as an acceptable gesture of appreciation.
So now you are ready to put together your wish-list for your board.
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