With investment comes oversight — your Board of Directors. If you want to transition from “newbie founder” to “professional CEO backed by outside capital,” you’ll need to recruit, communicate with, and satisfy a Board.
When it comes to board management, Emily Green is a pro; she’s seen both sides of the table as a three-time CEO and as an active public and private company board member. Emily draws on her personal experiences as CEO at CERA, Yankee Group and SmartLunches; and independent Board Director at Casella Waste, the Commonwealth Institute, and the Massachusetts Technology Council, among many leadership and executive coaching roles. Emily conducts herself with total business professionalism and has much to teach first-time CEOs.
What is the Board’s Job?
In practical terms the Board has two jobs:
Look after the interests of stakeholders.
Support management in running the company.
Keep in mind these are two very different roles. This will help you to sort out the feedback and the questions you hear during the Board Meetings.
What is the CEO’s Job?
As CEO, you also have two jobs:
Help the Directors do their job at oversight.
Use the Board’s expertise to help build the business.
When is the Board created?
At first the Founders may be the only Board members. Start-ups that raise money from angels or that start with a small seed round typically will not have an outside Board.
So most start-ups expand their Board of Directors sometime after the Seed round and before the Series A round.
If you can, start running formal Board Meetings with your seed investors a few months before the Series A and get practice in a low-stakes environment.
Who joins the Board?
Typical Board sizes at early stage are 3-5 people. The Board should include the CEO and the lead investors. There may also be a co-Founder, but usually not more than one.
As you progress through rounds, there will be pressure to expand your Board. Each investor wants a chance to watch and protect their own money. By the time you are a public company, you will have 9 or more Directors.
Keep it as small as you can
The more Directors, the more scheduling and management overhead for you. There are more interpersonal dynamics, more risk of a disruptive personality being added to the Board. As groups grow in size, participants may feel less responsibility to pitch in (the bystander effect). Larger groups also mean wider distribution and a greater risk that your firm’s confidential information will seep out.
If you do have a Seed Director who is useful, it is worth trying to keep them into later rounds, even if it means expanding from 3 to 5 sooner.
Once your Director seats are filled, new investors will ask for Observer seats. Observers are people who have a right to join the meeting, and generally do talk, they just do not get the right to vote.
Emily usually advises that you resist requests to add Observers, “I’m sorry my Board feels strongly that we should limit the number of people in the room for more effective meetings.”
Since Boards rarely vote, an Observer seat is nearly as influential and will add just as much overhead.
It is also quite common to create a seat for an Independent Director, who is neither an employee nor an investor. For example in a 5-person Board, there might be a CEO and a Founder, 2 VCs, and an independent. The independent is thus a deciding vote on any issue that separates investors from management.
Identify your firm’s greatest risks, then find someone who addresses that gap. Look for both useful advice and external credibility. A lot of VCs do not have operating experience, so you may need to rely on your independent for that.
Because of the value this person brings, it is good to find a top-notch independent director before you start your Series A fund-raising efforts. Emily suggests asking “your early customers who love you” for names. Stalk these referrals. Continue to stalk LinkedIn.
The independent can be enormously valuable to you. Do not rush to fill the seat.
You want maturity, willingness to commit the time, and importantly, the ability to disagree with super-confident VCs. Maturity means they have been around a block. It is great if they did it at a start-up but that is not required. Time commitment is a must-have. If the independent keeps forcing you to shoehorn company business into her busy schedule, you are in for a huge struggle. Finally, VCs are superc onfident and will voice strong opinions… whether or not they know what they are talking about. You need an independent director who can differ with them and be persuasive.
When you get the meeting with a prospective independent director, pitch your business as if you are fundraising so they can see the upside. But also, describe your goals and obstacles and ask them if they can provide the help you need.
As Emily notes, “Sharing problems is a plus. When asked to consider a Board role, I want to hear about your challenges. I don’t want to sit back and listen to slideshows. I want to engage my brain and be useful to the Company.”
Independents do not usually receive cash; they do receive stock options. This could be 0.5% ownership after the Series A closes, which means a higher percent prior to Series A such as 1% after Seed, or 2% of Founder’s shares. Sometimes you will bring on an Executive Chair who will play a more active role and receive more options. Independent director options vest quarterly or monthly over a period of 2–4 years. So, agree with your investors on the budget for equity before you start recruiting for an independent. You are expected to cash reimburse travel expenses, including airfare and hotel if the Director is from out of town.
Expect diligence in both directions.
After your first meeting, the prospective independent director may ask to see recent Board decks and to meet with the other directors and lead investors. You might engage them in 2–3 additional informal discussions as well, to make sure they truly will be helpful. As with recruiting anyone of talent, think of this period as a courtship.
Organizing Board Meetings
Your professionalism in organizing and running Board Meetings greatly affects the Board’s perception of your management ability. They are not in the office to see you run the Company. They do see you run the meeting.
Set up the Board Meetings far in advance. Meet at most once per month, better to meet once every 2 months, and after your business is established and out of the woods, switch to once every 3 months which is less work for all.
Every Board Meeting should have an Agenda. The ideal etiquette is that the CEO will propose the Agenda in advance to the Chair. The Chair will suggest changes, depending on what he or she believes will be of interest to the Board, which may include some oversight questions.
The Agenda typically covers an intro session by the CEO with the headlines, review of the latest financials, review of key metrics and performance indicators, then deeper discussion on 1–2 topics that require more extensive discussion, and finally an executive session and wrap-up. (The deck is discussed below; see also Emily’s slides or Pillar’s Board Deck Template).
An early stage Board Meeting lasts 2.5–3.5 hours. If you have Board Directors traveling in from out of town it is a good idea to also plan a prior-night dinner, breakfast or lunch around the Board Meeting so that the Directors can better get to know you and each other.
Who Else Participates?
In addition to the Board Directors, you want your CFO in the meeting. They can take notes and you can concentrate on running the meeting. You probably will not hire a full-time CFO until your company revenue is in the millions, so you can instead bring on a fractional CFO. Let them build the models, cap tables and ask them to guide you on valuations when fundraising.
who is in the room
Don’t be afraid to say “The Board feels strongly that the participant size needs to be limited.” Attending a Board Meeting is a privilege, and as the company grows, you can grant that privilege to your team: to attend, to present, to lead a discussion on a topic. It is a developmental opportunity that you can offer.
Typically you and the CFO start the meeting, and then VPs will come in for the financials, metrics and discussion portions.
Many Boards hold an Executive Session. This is a period of time at the end where the CEO steps out of the room. The Board then digests the meeting and comes together to offer clear (and hopefully unified) feedback for the CEO. The CEO then returns into the room to hear the feedback.
The Board Deck should be sent out ahead, ideally 2–3 days in advance because busy Directors may not have an open time slot in the 24 hours prior to your Board Meeting. You do want everyone to review in advance so you can focus on discussion, rather than you reading the slides out loud.
In addition you should send Minutes from the past meeting in advance. The Minutes are a concise documentation of the prior Board Meeting — when it was held, who attended for what portions, whether new options were awarded, and what other large decisions were made.
Bear in mind that both the Board Deck and the Minutes are subject to discovery. That could be legal discovery in case of a lawsuit, or it could just be a diligence request by a future investor. Therefore, you should be circumspect in all written documents shared to the Board. State the facts. Minimize unnecessary opinions, long text descriptions, clip art, misspellings, wrong data.
Recognize that your statements may later be taken out of context.
You will need to take Minutes. Emily would do this by opening a template on her laptop and writing down a sentence each time she moved to a new section. Or you can write the Minutes immediately after. Do not wait because you will forget. Accurate Minutes of each Board Meeting are a requirement for later-stage financing.
The Board Deck is really important.
It should be super simple. As mentioned above, avoid long prose and clip art. The Board wants you running the company not writing slides.
Bias your deck toward charts, graphs and tables. Those are easy to scan, and they impose more discipline on you as CEO to order your thinking. Use a standard format each time, so that people get used to it and can see changes.
Make it super high quality. No math errors. No typos. Small mistakes make you look sloppy, not CEO-like. Ruthlessly recheck your deck for errors.
Emily likes to see the deck kick off with some kind of dashboard or scorecard, with the key goals of the company highlighted in green (on track), yellow (needs corrective action), and red (not expected to succeed).
When it comes to financials, show all the financial statements (Income Statement, Balance Sheet and Cash Flow) and show them in a classic format for ease of digestion. And show comparisons — for example this quarter vs. last quarter or plan vs. actual. “I’m not going to remember your numbers from meeting to meeting. Comparisons give me context.”
Any long reports or exhibits should be relegated to an Appendix.
After you send out the deck, set aside a permanent copy in a folder. That will make it easy for you to find the official versions later.
At the Meeting
Walk through the deck, maintain poise during discussion, stay on the schedule, answer questions, write down suggestions.
Some CEOs feel like they are on trial during Board Meetings. Emily says that is understandable “because to some extent you are. At the end of every Board Meeting, the Directors must reflect and decide: is this the day we fire the CEO? Because there is not much else they can actually do to affect the company. Doing nothing is an implicit endorsement, kind of like real estate — holding is buying. So recognize that this is the nature of Boards and all CEOs feel this way. Be professional. You will work most productively with the Board if you view them as a resource, not an adversary.”
Managing Bad News and Problems. Any important news should be in the deck you send in advance. Never drop a surprise at the actual meeting.
In the case of super bad news, make sure you actively call each Director ahead of time so you can explain personally.
A CEO asked, what if there is a problem and you don’t know what to do? Emily said it is your job as a leader to come up with solutions. So you wouldn’t say “I have no plan at all.” You say “Here is the problem and here is my thinking so far. I’m not sure it is the best solution but that is where I am at.”
You might also identify key risks. You can say “I want to put this issue on your radar. This is a simmering problem. We think we’ve got it under control, but I am making you aware.”
You need to walk a fine line between confidence and humility. The Board knows you don’t have all the answers.
Don’t act like you’ve got everything locked and loaded. You should project confidence though. If you don’t have faith in yourself, how can they have faith in you?
Even when the news is bad, you are still the leader. Put your shoulders back, practice your yoga breathing, and strike those power poses. Attitude counts.
If the Board becomes toxic, address it head on. “Gee, the last few meetings have felt like a battle, and it doesn’t feel effective. Do you agree? How can we change? Can we change the topics, the people in the room, how I present?”
Emily strongly urged CEOs to underpromise and overdeliver, echoing advice that Tod Loofbourrow also emphasized at his workshop,
A lesson she learned the hard way is:
“Don’t be a hero at budget time.”
It costs the Board Directors nothing to urge you to aim higher. Whereas missing your goals can cost you your reputation.
Better to say “Hey, nobody would love to do $10M in sales this year more than me, and I can imagine a scenario where every sales call is a yes and the team works every night and weekend and we have zero mishaps in execution, but I want to have a plan we can actually deliver. So it’s $6M.”
While you can screw up a few times… at a certain point, you are done. So take care not to miss a goal simply because it was never realistic in the first place.
After the Meeting
How do you know if the meeting was a success? Emily says “You ask! Call the Chair or another Director, and ask them for a few minutes of feedback. How do you feel about how I led the discussion? Where was I on a scale of 1 to 5? It was a 3? What can I do to make it a 4?”
you should do it anyway
Perhaps the Board does not like the way you do the job. If so, you gain nothing with your head in the sand. Find out the truth. The more committed you are to learn how to be a professional CEO, the more patient they will be. Take comfort that Boards genuinely want you to succeed because replacing a founder hurts a company and hiring a fresh CEO is giant hassle for them.
After a seed stage board meeting, you may want to communicate with your angels. If so, summarize the meeting in just a few paragraphs. Don’t widely distribute your entire Board Deck.
During the weeks between Board Meetings, do let Directors know if their advice was helpful. Don’t bother telling them when you take their advice and it was bad! Their job is to give lots of advice. If you take their advice and it fails, they still blame you. Do also share your key wins, pictures from events, press clippings and other milestones along the way. That builds enthusiasm.
Your job is to figure out which advice is worth taking.
Finally, thank your Directors constantly! They are not paid cash show up. They usually have much less to gain personally than you as Founder. Attending Board Meetings is work for them too.
Great board meetings come from substantial preparation. It takes time to get the right people in the room, be thoughtful about your agenda, compile all the metrics, polish the written materials, run a tight meeting, seek feedback, and follow up. None of that can happen at the last minute either.
Great Board Meetings come from substantial preparation.
In return, the Board fulfills your need for oversight so that you can raise more capital. It can also support your leadership, bring fresh perspectives, attract talented job candidates, enhance your company’s reputation, and open doors to contacts in high places. The Board of Directors is a key resource to professionalize your Company, so it is well worth the effort.