What to look for in a board member? Engaging but operational distant. Being too operational requires too much engagement, usually on a specific issue that has little relevance. More importantly, the most useful board members are those that have a fundamental understanding of the business, the economics or drivers, the competition, industry, and the like.
Company board members. Usually only one person within the company is on the board, that is the CEO. The CEO should be the leader and the boss. Thus, having someone else within the company who work for the CEO is not usually on the board, because how can they work for the CEO and be the boss of the CEO, since the board is the CEO's boss. Although, the CFO may be present in meetings to convey financial information, the board deals and communicates with the CEO. The CFO or other non-board member attendees do not vote or engage in conversation, other than the results they present.
Board basics. Every company should have a Board Of Directors. The shareholders elect the Board of Directors and there is usually a nominating entity that puts directors up for election by the shareholders. If the founder controls the company, then they are usually that nominating entity. The Board of Directors is the governing body for a company. All major decisions will be made by the Board. The Board's approval is needed to sell the company, hire or fire a CEO, to approve a major acquisition, or to do major financing, including an IPO. However, the CEO runs the company. The Board makes sure the right team is in place and guides the overall direction. The Board should not be too involved. They should be focused on key issues and debate them openly, but Boards should also be leader driven, this is the Chairman.
The Board Chair. The Chairman is responsible for ensuring the Board is doing its job. They ensure the Board is meeting on a regular basis and that the CEO is getting the most from the Board. When there are opposing views the Chairman ensures all opposing views are heard and pushes and ensures resolution. It is common for the founder/CEO to also be the Board Chair. If the Chair is independent, the Chair works closely with the CEO to keep them up to date on the Board and get value out of a Board.
Board meetings. This is the way Boards function. Some Boards meet monthly, this is good for young companies where things are changing frequently. Board meetings should be discussions, not an update session. Updates should be done via email or calls in between meetings. There should be some structure or agenda, but there should not be too much structure. There should not be too many topics and most of the discussion items should be strategic and items that the business must tackle to be successful.
Board meetings are generally two to three hours. The Board deck (outline of sorts) is sent out three or four days in advance includes all the important financial and operational results for the Board to consume in advance of the meeting. It should also tee up the big discussion items so that the Board can start to think about them in advance of the meeting. The CEO should also convey the three or four items that are their top concerns or their biggest worries.
The Board should commit to to face to face meetings and the CEO has to keep the Board up to date in between meetings so reporting doesn't have to happen in the meeting. The Board should understand the business and the market well enough to be able to have a meaningful discussion about the key issues the business is facing.
Board compensation. Cash compensation at an early stage company for board members is a rarity, and likely means the member is joining for the wrong reasons. A good compensation structure is something along the of options at 0.25% - 1.00% (this will depend on their experience on boards), with annual vesting over four years.Term of Board members - Terms can vary , four years is usually a good number, but some are longer.