"Only about one-half of Inc. 500 companies report active, engaged boards of directors. Yet, in my experience, boards of directors are a critical success factor in fast-growing companies.” So says William Payne, of the Kauffman Foundation.
Payne would know. He’s an entrepreneur and an angel investor. He founded an electronic materials company in 1971 and sold it to DuPont in 1982. He’s made angel investments in 30 early-stage companies and served on the boards of a dozen such firms.
When the CEO runs into an obstacle he’s never faced before, a quick call to the board of directors can offer invaluable advice. Board directors can turn difficult situations into opportunities, steer CEOs clear of legal liabilities, and mediate disputes among leadership with the company’s best interest at heart. Far from being a burden, boards composed of the right directors are an asset to an entrepreneurial company.
Indeed, board directors spell success – and there are business gurus out there who are willing to fill a vacant seat. How then do you compete for top talent that will take a company to the next level? There are some common denominators among boards of directors that are worth noting. The Entrepreneurial Boards Composition Survey will offer you insights.
One key area that affects all boards is compensation. Barbara Hackman Franklin, a corporate director and former U.S. Secretary of Commerce, said: “While there is no prescriptive answer to the right formula for a CEO pay package, we believe there is an identifiable set of practices that boards can apply to their deliberations. Coupled with a spirit of courage and rigor, these practices can help ensure that we motivate and retain the best talent while minding the long-term interest of the organization and its shareholders.”
Another area: How can you build a board with a diversity of experience to gain the broadest knowledge base? Jeremy Curnock Cook and Geoffrey Vernon, directors of Rothschild Asset Management Ltd., an investment banking group headquartered in London, agree: appointing only recruiting directors from a small, familiar circle of associates is a common mistake early-stage companies make. This practice, they assert, tends to create a cozy club rather than a decision–making group that adds real value.
Tenure is another area of concern for a board. How much board experience does a director need? The Vell Entrepreneurial Boards Composition Survey not only investigates this topic but also concerns about the size of the board, how frequently the boards meet, what percentage of the board is independent, cash and equity compensation, and the prevalence of empty board seats.
By employing best practices in corporate governance, companies can assemble and maintain boards that help corporate executives drive greater profits and growth. Governance offers a level of accountability that keeps entrepreneurial companies on target with unbiased advice, insights into new and changing market opportunities, and warnings of potential pitfalls. The board of directors becomes the CEO’s personal advisor. Directors help level the playing field for entrepreneurial companies seeking to compete with larger firms. Indeed, board directors have never been more important to a small, growing company as they are in today’s global business environment.