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Tuesday, 04 June 2013 16:44

What does it take to be a Board Member of a Tech Board? Featured

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The characteristics of the boards who completed the survey were dramatically different, even among companies doing business in the same industry. Perhaps one of the most insightful differences is the make up of the board members’ professional backgrounds and industry experience. For example, there were large variances among companies in the proportion of board members who are company officers, venture capitalists, major investors and independent outsiders.

Much like NACD’s study, our results revealed public company boards are significantly more independent than private company boards. The median proportion of independent directors is 20% at private companies. That number skyrockets to nearly 70 percent at public companies. There are four reasons why:

First is the talent myth. CEOs and investors believe that they cannot attract world-class talent to a privately held company. That premise is flawed. Our experience has been that senior executives want to give back and enjoy contributing to entrepreneurial companies for reasons beyond compensation.

A second reason it is common to see fewer independent directors on the boards of private companies is the lower level of external scrutiny for the independence of board members in private companies.

A third reason is control. VCs and private equity players sometimes want to maintain tight control of the boards of privately held companies.

A final reason is that this is not top of mind for the board members or the CEO. Typically, the board’s first concern is attracting a management team. Later, the board focuses on its own makeup. This ties back to the first premise that CEOs and investors mistakenly believe that they cannot woo top talent to entrepreneurial firms.

Figure 5a: Board Composition of Private Companies: Spread in Representation

Board Composition of Private Companies: Spread in Representation

Not surprisingly the proportion of venture capitalists on private company outstrips public company boards. VC representation is much more prevalent at private companies. At the median private firm, almost one in five board members brings a VC affiliation. At the median public firm, there is no VC representation on the board of directors. With VCs focused on private companies, it stands to reason that VCs who have invested in private companies will take a seat on the board of those companies and exit the board when the company goes public.

Figure 5b: Board Composition of Public Companies: Spread in Representation

Board Composition of Public Companies: Spread in Representation

Considering the relatively short lifespan of the responding companies – most firms were in operation for less than 10 years and none have been doing business for more than 10 years – it follows that director tenure at the surveyed firms is short.

Specifically, the median director in the survey’s sample of small technology firms reports a mere 3 years tenure. By contrast, in 2005, the median director among S&P 1500 firms had a 6 year tenure. Given that more than 65% of respondent companies have been in business for 5 to 10 years, we can conclude that many directors were not members of the board when the companies they serve were initially launched.

Figure 6: Director Tenure - Number of Years on Present Board

Director Tenure - Number of Years on Present Board

The survey discovered a welcomed disparity, though, between the director’s tenure on the board and his/her experience in the technology sector. 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. (See Figure 7.)

Figure 7: Director's Highest Liquidation Experience

Director's Highest Liquidation Experience

Massachusetts is a technology hotbed. Given that the greatest concentration of surveyed companies are located in the state, it’s not surprising that approximately one fourth of all directors represented in the survey report significant experience in the software industry.

More than 20% of board members come from the financial services sector, while more than 10% come from telecommunications. About 8% are in the business services field, while about 7% are in the hardware sector. 5% are in the health care and pharmaceutical field. Less than 5% are in the education, manufacturing, aerospace, and automotive fields. Consumer products and services were least represented, with less than 5% of directors coming from that sector of the economy. (See Figure 8.)

Figure 8: Director Experience - Industry Specialty

Director Experience - Industry Specialty


Click here to read the full report on Entrepreneurial Boards.

Read 9209 times Last modified on Saturday, 08 August 2020 20:14
Dora Vell

Dora Vell is the Managing Partner of Vell Executive Search, a boutique executive search firm in Boston focused on recruiting technology executives and board members. Vell has successfully completed numerous board member and C-level executive searches, including CEOs, COOs, CIOs, and Vice Presidents - at both public and private companies.

Prior to founding the firm in 2005, Vell was a Partner at Heidrick & Struggles' Technology practice for seven years.  Before her career in executive search, she worked at IBM for 11 years, managing software engineering organizations of 100 people and software sales organizations with revenues of $150 million. She has also served as an executive assistant to the CEO of IBM Canada for one year.

Vell holds seven worldwide software patents. She has published several Business of Leadership reports on governance and leadership and has been quoted in numerous articles including The Wall Street Journal, Forbes, Business Week, Fortune, Agenda Week, MSNBC, Mass High Tech, the OPUS for the World Economic Forum, Boston Business Journal, The Globe & Mail, CIO Magazine, and IEEE. She also has been a featured speaker on leadership at numerous conferences and at Columbia University's MBA program.

Vell is a member of the National Association of Corporate Directors (NACD), the Boston CEO Roundtable. She has served on the boards of Framingham State, Entrepreneur's Organization, Goodwill, Mary Centre for developmentally handicapped adults, garage.ca, and RBC Capital Partners.

She has received an MBA from the University of Toronto, a Master in Computer Science from the University of Waterloo, and a Bachelor in Computer Science from Carleton. She has also completed the MIT Entrepreneurial Master’s program.

www.vell.com

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