| Entrepreneurial Boards Report - Executive Summary |
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There is little research to help companies develop best practices for attracting, retaining, rewarding and drawing value from their boards. Often, chief executives are unsure of the appropriate: intervals for board meetings, compensation, and diversity of the board’s members. As a way to cogently and concisely answer these questions, the Vell Entrepreneurial Boards Composition Survey identifies trends in boards of directors. We surveyed 150 CEOs, venture capitalists and vice presidents of human resources and board directors from various industries – more than 18 in total – with a special focus on small software and technology companies in the United States. Approximately 50% of responding companies had average annual revenues of less than US$10 million and have been in operation between five and 10 years. Most are privately held. To put these trends in context, where appropriate, we benchmarked our findings against the National Association of Corporate Directors’ (NACD) Effective Entrepreneurial Boards 2001 Survey. We also drilled down into our data to expose differentials based on size, ownership structure, length of time in business, and revenues. By comparing findings to the NACD’s survey, and by comparing private and public companies where possible, we were able to highlight board practices at entrepreneurial firms, especially small technology companies. We also discovered a diversity of remuneration structures worth noting. The following offers key findings from the Vell Entrepreneurial Boards Composition Survey, and provides eight recommendations for entrepreneurial boards. Entrepreneurial Board Composition The median proportion of independent directors is 20% at private companies. That number skyrockets to nearly 70% at public companies. Venture capital representation is much more prevalent at private companies. Industry Specialties Approximately one fourth of all directors represented in the survey reported significant experience in the software industry. More than 20% came from the financial services sector, while more than 10% came from telecommunications. Consumer products and service experience represented less than 5%. Director Tenure and Experience The median director in the survey’s sample of small technology firms reported a 3 year tenure. In 2005, the median director among S&P 1500 firms had six years tenure. Although less than 10% of respondents reported greater than US$100 million in revenue, the median director has at least $100 million in liquidation experience. Entrepreneurial Board Size The average board represented in the survey hosts six members. The median number of directors at the smallest firms within our survey (i.e., firms with less than US$5 million in annual revenue) is five. The median number of directors at the largest firms within our sample (i.e., firms with greater than US$25 million in annual revenue) is seven. When we compare public and private companies with the same revenue, we find similarly sized boards. Entrepreneurial Board Vacancies Roughly 1 in 3 private companies have at least one empty seat on the boardBy contrast, only one in six public companies has a vacant board seat. Board Involvement The number of board meetings at respondent companies ranged between one and 28 meetings per year. 80% of companies had between 4 and 12 meetings. The median (mean) number of meetings among respondent firms was six (seven) meetings per year. The median number of face-to-face meetings was 4 per year. Cash and Equity Overview Private companies are much more likely than public companies to either not pay their directors, or rely exclusively on equity awards, such as annual awards or awards upon appointment. Only 27% of our survey respondents pay a board meeting fee. Nearly 50 % of the firms that pay for board attendance pay exactly US$1,000 per meeting. 60% of firms that pay board member meeting fees also pay additional fees to non-chair committee members. The median cash payment among companies that make such payments is US$1,000. Annual Cash Retainers There is a strong association between a company’s revenues and the dollar figure of the annual cash retainers they pay to board directors. Specifically, among the size-matched public firms that pay a cash retainer to board members, the median retainer is US$12,500 for public entities, and US$20,000 for private ones. Equity-Based Remuneration In 44% of private companies, board members receive equity awards only upon joining the board. Only 4% of public companies employ the same policy. The board receives an annual equity award and equity upon joining the board at 71% of public firm respondents. Only 18% of private companies follow such a policy. Equity remuneration, when it is part of the overall package, is higher on average than prior samples taken of entrepreneurial companies. Recommendations Vell Executive Search suggests the following approaches for entrepreneurial firms:
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