In my last blog, A Startup Needs a Good Board of Directors, I covered the importance of putting together a board of directors, especially at the startup phase. OK. The board's in place. Now what?
I can't stress enough the importance of regular and consistent communication throughout an organization. It's an even greater imperative that a company's CEO effectively communicate with investors and members of the board of directors. Naturally, the main interaction between the CEO/founders and the board is during the board meeting, though it should not be limited to just board meetings. As I've mentioned before, no surprises should be announced at a board meeting.
Before we go too much further, a first-time CEO may wonder about the number of board meetings per year, their duration, and other forms of board etiquette. Certainly, the number can vary and will range from monthly to quarterly, depending on the company's situation. A good rule of thumb is six to eight per year. Meetings typically last between two and three hours.
Open and shut
Board meetings are typically split into two sessions. They start with an open session attended by the board of directors and the company's executive staff. During this first part, the executives will provide updates, and the team will discuss strategic issues. This is followed by a closed session attended by the directors only and typically including the CEO. At this point, the performance of the executive team and select issues (mergers and acquisitions, for example) are covered. Optionally, the outside directors, not employees of the company, might ask the inside directors who are company employees to leave for a separate discussion. When the company grows and the board expands accordingly, committees will be formed that meet separately, but this falls beyond the realm of our startup focus. Compensation and audit committees are the most common.
Organizing an effective board meeting can take practice and a fair amount of savvy. I have attended many as CEO, board member, observer, usually representing a minority investor, and investor, and can offer a few recommendations based on my observations to ensure they don't become bored meetings.
As CEO, being prepared for the board meeting is rule No. 1. This means that board materials should be informative and substantive. They should be ready and reach board members at least a couple of days before the meeting to give directors time to prepare, a necessary courtesy, given the busy schedule of most board directors.
One important benefit of prior preparation is that status updates can be kept to a minimum and the discussion can focus on strategies where board members can offer the most help. Frankly, wearing my outside board member hat, these discussions are more interesting. No one wants to rehash the CEO's tactical decisions unless there is a perceived problem. In general, meetings that are heavy on updates feel like a waste of time. I found it useful to choose a topic for a “deep dive” brainstorming session during each board meeting.
The CEO must take a leadership role in the board meeting, even if he or she is not the chairman. After all, it's his or her company. If board members dictate the discussion, the CEO and the company are in trouble. This starts with the CEO setting a clear agenda with meaningful objectives. When the CEO is not the chairman, it is important that the CEO and chairman communicate extensively before the board meeting about the agenda and objectives.
The CEO is expected to be leader and should act accordingly. When debating an issue, for example, he or she should offer specific solutions and options. These options will focus the discussion and may trigger a better alternative.
It's wise to remember that outside board members are not focused 24/7 on the company, which is why starting with a short refresher on the corporate strategy is useful. Because legal teams recommend that board minutes be kept to a minimum these days, the minutes review does not help set the context.
Board members should recognize the successes of the team and provide appropriate encouragement. However, the reality of board meetings is much different. CEOs can expect tough discussions that leave bruises that take getting used to. A group of outsiders, often with limited experience in the targeted market segment, spending four hours a month thinking about the company, are telling the CEO, who is dedicated 24/7 to the startup, what he or she is doing wrong.
However, experienced board members understand they are most useful when they bring a different perspective and force the CEO and the management team to think differently or unconventionally. The CEO needs to bring an open mind and quickly evaluate the new ideas.
Be a good host
Today, even startup companies are distributed around the world, so it is common for board members to hail from distant places. Hence, board members usually arrive the night before the meeting, and unseasoned CEOs wonder if they are required to host a dinner for them.
Pre-meeting dinners are a conundrum because they can be viewed as an informal part of a board meeting or as a social events. As discussed above, the CEO has to be prepared for a tough meeting, which makes the appropriate approach to these dinners even more elusive.
Here are three suggestions. First, dinners after the board meeting work better because the tough part of the discussion should be out of the way, implying that the board begins in the late afternoon. The second option is to set a specific discussion topic for the dinner to keep the interaction focused and avoid preempting the board discussions. The final option is to stay home and enjoy family time.
While transparency is important for healthy relationships among the CEO, the board of directors, and investors, the CEO must never forget to be a professional. While the relationship between both can be friendly and cordial, the board is the CEO's boss with hiring and firing authority. Board members should never be treated as a best friend or the next door neighbor.
— Michel Courtoy is a former design engineer and EDA executive who sits on the board of directors at Breker Verification Systems.