Reinventing the Board

10/3/11Follow @geshwiler

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what the academic literature calls “path dependence and lock-in.” In other words, people tend to choose people like themselves.

As the board matures, the existing board tends to recruit similar people-or people they just like-rather than those with contrasting skills and personalities. Private company boards also tend to grow, with new people added to the board rather than replacing existing members. Early investors, founders, and other board members don’t like to be removed from the action, and particularly if the company is successful, they want to share in the credit. The end result often is a large, unwieldy board that reflects the needs and personality of the company at its founding more than its current requirements.

A Better Route: Board Structure Mirrors Corporate Evolution. Growing companies go through distinct phases of evolution where roles and the skills needed to succeed change to meet operational and market needs. The organizational process literature has various names for each of these phases; the ones I like for high-growth technology companies are:

Entrepreneurial Phase. The company’s main job is to assess the marketplace and gain initial sales and recognition. Team members each play a multitude of roles. Decisions are made in real-time; frenetic activity is a hallmark.

Collectivity & Scaling. The company has increasing focus after finding the optimal ways to engage the marketplace. New functions emerge, and the organization has a greater division of labor. Coordination challenges set in, and there is a greater need for internal communication.

Early Maturity, Formalization & Control. The company begins to take a more functional structure with greater specialization as product and service designs become more stable and refined. Focus shifts to rules and procedures. There also often is a drift to strategic conservatism.

Not only do the company’s organizational needs change, but the board should change, too. The board is just one potentially, very important team among many in a growing technology company. It can be managed and evolved just like any other team with one exception: since there often isn’t a designated chairperson, or the title is in name only, no one person is usually in charge.

Building and Rebuilding the Board. Board design and makeup has to involve consensus-building. Whether creating a new board or evolving an existing one, the process is much the same. Start by creating a group of the primary shareholders or their representatives to discuss what the board should look like. Then, take the following steps:

1. Conduct an annual self-assessment. What are the company’s current and near-term future needs? How do the board’s skills and constituents compare with those needs?

2. Write position descriptions for board seats. Common forms of board members include organizational builders, technical experts, industry veterans, market mavens, visionary leaders, and financial professionals. Position descriptions should be similar in length and specificity to a management hire.

3. Conduct interviews with a variety of potential candidates to compare and contrast candidates as well as ensure the selection of the individual with the best potential fit.

4. Select candidates and create (or re-create) the board.

Like other team-building exercises, good process takes time. The CEO often has many competing, urgent priorities and may be viewed as too conflicted to orchestrate the board evolution. The chairperson or a lead director should own the process and be accountable to their peers. The most operational items such as board meeting agenda and style flow out of the board’s composition. Then, start executing for another year until the next self-assessment.


Author’s note: For further reading on this subject, see:

Adizes, Ichak. Managing Corporate Lifecycles. 2004.

Salazar, Andres; “Board Member Selection in New Technology Businesses,” Entrepreneurship in a Diverse World, Vol. 8 pp 2005

Lynall, Golden, & Hillman, “Board Composition from Adolescence to Maturity” Academy of Management Review, 2003

James Geshwiler, a managing director at CommonAngels for more than 10 years, has financed over 40 software and Internet companies and worked with them through over 100 rounds of investment and related changes in boards of directors. [Editor's note: CommonAngels is the lead investor in Xconomy.] Follow @geshwiler

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  • http://www.gilberttweed.com Neil Greco

    Astute observation about developing and managing Boards. Several of my recent Board projects have resulting in exactly this approach – as the business evolves and the executive management team adjusts, so does the need to adjust the Board so as to complement the requirements of the business.

  • http://www.OhioTechAngels.com John O. Huston

    Thanks, James, for providing your usual masterful insights, but, here’s a question: Have you seen many of your 40+ ventures achieve a highly lucrative liquidity event with the CEO being the Board Chair at the time of exit? My best Boards have split these duties but perhaps in Boston it works.

  • http://www.commonangels.com James Geshwiler

    John: I think the question is not what has happened but what could be better. To answer your question directly, what I’ve seen and experienced has been mixed. To focus on the negative, one good exit in particular had quite a dysfunctional board. Could it have been a better outcome with a better board? We’ll never know since we can’t run control studies on companies. At the same time, I don’t think anyone involved would have made a case that the board helped either, and all would likely say it hindered. I think everyone would have rather said, “hey, we all did our best and we know this is the best we could have done.” You can’t say that when there are all sorts of internal problems. The role of the chair, however, will be the subject of the next piece. So, stay tuned!

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