Positioning your board advisers for success

The right people around your board table can give your startup experience, judgement and connections you simply don’t have yet.

But adding an impressive name to your board isn’t enough.

As governance expert Julie Garland McLennan explains, founders need to be deliberate about who they bring in, what role those people will play and what both sides expect from the relationship.

That starts with a basic principle: the people you need around your company will change as the company changes.

Here are five ways to set your board, directors and advisers up for success.

1. Choose people for the stage you’re in

A director who is perfect for a fast-growing startup may be completely wrong for a mature company focused on stability.

Julie recommends looking for people who have experience with companies at a similar stage of development, rather than simply choosing the biggest name you can attract.

Ideally, a director will bring several things your board needs:

• recent experience in your sector, industry or technology
• experience with companies at a similar stage of growth
• the ability to tackle a problem your company is currently facing
• an understanding of your capital structure and sources of funding
• credibility with customers, investors, partners or regulators
• a perspective or capability that nobody else on the board brings.

Just as importantly, they need to understand what being a director involves.

“Never assume that somebody knows how to be a director,” Julie says.

A brilliant technical expert, investor or commercial operator may still need support to understand boardroom responsibilities, confidentiality, decision-making and director duties.

And once appointed, they are a director of the whole company, not simply the board’s expert on their particular field.

2. Keep shareholder and director roles separate

In startups, the same person may be a founder, shareholder, executive and director.

Those roles can easily become blurred, but but they are not the same.

Shareholders invest capital and vote on certain major company matters. Directors, once appointed, are responsible for governing the company and making decisions in the interests of the company as a whole.

That means a director who is also a major shareholder cannot simply treat a board meeting as an opportunity to pursue their own investment interests.

Julie says this distinction is particularly important where investors nominate directors to the board.

A director needs the authority to exercise their own judgement at the board table. A board can quickly become ineffective if one member has to take every decision back to the shareholder who nominated them.

Founders should also be wary of directors who cannot challenge them.

Friends, family members and long-time supporters can bring valuable experience, but only if they are prepared to tell you something you do not want to hear when the company needs you to hear it.

3. Choose the right structure for the advice you need

Not every useful person needs a seat on your governing board.

In fact, a small company with an unnecessarily large board can create more complexity than value.

Depending on what your business needs, there are several ways to bring expertise into the company.

A governing board makes formal company decisions and carries the legal responsibilities of directors.

An advisory board can bring together people with specialist commercial, technical or industry expertise without giving them the same formal decision-making role as directors.

A panel of advisers can work when you want to call on individuals separately for particular expertise rather than bringing everyone together to make recommendations as a group.

A shareholder council can give major investors greater access to information and management without turning shareholder discussions into board decisions.

Julie also recommends founders build a strong peer network of other CEOs who understand the challenges of running and growing a company.

The important thing is to define each structure clearly.

If members of an advisory board start performing the functions of a governing board (directing company affairs, overseeing matters reserved for directors or effectively making board decisions), they may risk being treated as directors under Australian law.

Clear terms of reference help keep those roles distinct.

4. Change the board as the company changes

Your board should evolve with your business.

During rapid growth, you may need directors who are comfortable with uncertainty, expansion, capital raising and constant change.

Later, the company may need different skills: stronger systems, risk management, capital allocation, compliance or operational discipline.

If the business enters a turnaround or reinvention phase, the balance may need to shift again.

Julie points to this as a normal part of a company’s development rather than a sign that somebody has failed.

This becomes particularly important if you are preparing for an IPO. Julie recommends beginning that preparation at least a year before a planned listing.

That can include strengthening the executive team and board, building a risk register, preparing expert reports, gathering evidence for claims that may appear in the prospectus, reviewing contracts and asset ownership, developing disclosure and share-trading policies, and making sure the company’s shareholder register is ready for life as a listed business.

She also recommends drafting the prospectus early and keeping evidence for every significant statement you intend to make.

The directors who can guide an early startup may not be the people you need to take a company onto a public market.

5. Put expectations in writing

Once you have found the right person, be explicit about the relationship.

Discuss what you expect them to contribute before they join. That may include:

• how much time they are expected to commit
• meeting attendance
• introductions or network access
• support with sales or partnerships
• specialist expertise
• remuneration
• equity or investment opportunities
• confidentiality and conduct
• expected tenure.

For an early-stage business, Julie says this does not necessarily need to be an enormous legal document. Even a clear set of agreed dot points can make expectations much clearer from the beginning.

Tenure also deserves particular attention. Rather than waiting until somebody has overstayed their usefulness and then having an uncomfortable conversation, discuss the likely length of the relationship at the beginning.

Julie describes this as progression planning rather than simply succession planning.

Your company should know what it hopes to gain from the director over that period. The director should also understand how the role fits into their own career and board portfolio.

That creates a much healthier conversation when the company eventually needs different expertise.

The principle behind all five steps

A strong board gives founders access to experience, judgement and perspective they can use as the company grows.

That starts with being deliberate about who enters the room, what they are there to contribute and how their role may need to evolve over time.

The most valuable directors bring experience that matches the company’s current stage and the challenges ahead.

As the business changes, the board should change with it.

About Julie Garland McLennan

Julie Garland McLennan is an experienced company director, governance adviser, author and educator who has served on numerous boards across multiple sectors.

She has written and delivered director education for governance organisations including the Australian Institute of Company Directors, Governance Institute of Australia and the National Association of Corporate Directors in the United States.

She is also the author of six books for directors and publisher of The Director’s Dilemma newsletter.

Find out more

Watch Julie’s full Stone & Chalk discussion on How to Position Board Advisers for Success on our YouTube channel.

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