The evidence is in. While Canadian companies share best practices with counterparts in the U.S., there are also some significant differences in the way Canadian companies work with boards of directors. It is clear that companies in Canada and the United States must take action to develop and incorporate best of breed practices for their boards of directors in order to derive the maximum benefit from members and to attract world-class talent.
The Entrepreneurial Boards Composition and Compensation Survey: The Canada Report shows a significant variance in the number of board directors between Canadian and U.S. companies. Canadian corporations report between five to eight directors, while U.S. companies report between three and nine board members. With Canadian firms reporting slightly more vacancies than companies in the United States, Canada’s small companies would do well to fill empty seats to maintain and perhaps even gain a greater competitive advantage.
We have also found that U.S. companies have far more insiders on their boards, such as venture capitalists, investors and officers, and fewer independents. This is a unique opportunity to attract experienced executives to help steer a company’s board. Both U.S. and Canadian companies are not strong on filling empty board seats with key customer, supplier and industry luminaries.
David Thomson, author of “Blueprint to a Billion,” analyzed the seven essentials of growing companies from zero to $1 billion in revenues. What he discovered is profound. Tier 1 board members are common to every single company in his research that grew to $1 billion in revenue. He offers some valuable advice for companies looking to revamp their boards, or create them for the first time:
“Blueprint company boards were heavily weighed with alliance partners, customers and CEOs who had scaled a business. Companies with investor-dominated boards tended to struggle. Blueprint company boards were a much valued extension of the company’s business strategy and management team. These external members provide cross-industry experiences that can greatly benefit a company. We thought that smart investors would dominate the most successful boards. While exceptions existed, Blueprint company boards predominantly featured some combination of customers, alliance partners and CEOs.”
Whether an entrepreneurial company is seeking to break the billion-dollar revenue mark or not, The Entrepreneurial Boards Composition and Compensation Survey: The Canada Report offers findings that support the notion that carefully selected boards are those that draw from a diverse base of industry experience and, consequently, offer well-rounded decision-making capabilities. Selecting a board member needs to be based on company strategy and complementing the existing skills sets of the leadership and governance team. Given the fact that more than one-fourth of Canadian companies that participated in the survey have at least one board seat open, there seems to be either a lack of recognition of a board’s value, or a lack of understanding that entrepreneurial companies can attract top-drawer talent.
While some firms may shy away from taking on the cost of board members – and the time for meetings – the data show that it doesn’t take a billion dollars to attract a billiondollar mind. In fact, most of the cash outlay is nominal for cash-sensitive companies. The return on the investment is great. The risk is low. The data also show that entrepreneurial companies do not have to settle for inexperienced board members.
Canadian companies are much more generous to their board members on cash compensation and equity compensation. There is often a fear that it would “take more” to attract tier 1 board members, but the evidence is in that they do not need to alter their compensation structure to attract Canadian, U.S. or international board members.
As a result of these trends, Vell Executive Search suggests the following approaches for entrepreneurial firms:
- Aggressively seek to fill empty board seats. Empty board seats devalue overall production of the board and rob your company of the opportunity to draw from the wealth of experience that seat could offer.
- Whenever possible, attempt to maintain a diversity of skill sets and industry experience on your board. This will offer you a well-rounded perspective on the opportunities and challenges your company faces. For example, attorneys may be an untapped resource.
- Ensure that the skills sets on your board match your company strategy and complement the skill sets on the management team and the board.
- There isn’t one set formula for the ideal board member for a particular type of company. The strategy of the company, paired with the skill sets that are already on the management team, and the board dictate where the opportunities for an optimal board member lie.
- Small boards are the norm. Seek to grow your board to between six and eight members. Too many members can breed confusion; too few can leave important perspectives buried.
- Don’t allow financial pressures to prevent you from seeking top-notch talent.
The overarching conclusion from the Entrepreneurial Boards Composition and Compensation Survey: The Canada Report is this: building and maintaining a strong board of directors is vital. Keep in mind that the underlying reason for corporate governance rules, such as independence of the board of directors, is for the company’s general health. Entrepreneurial companies in any industry typically cannot afford to hire the cadre of C-suite executives that make up a dream team, but board of directors offer a steppingstone that benefits the company today and in the future.
Roger Raber, past president and CEO of the NACD, put it this way: “Today’s engaged director is more committed than ever to providing rigorous analysis and making hard decisions, as well as adding strategic value to the company and shareholders.”