Mar 312011

Should You Have a Board?

Should You Have a Board?

As I mentioned last week, Fred’s post from a few months ago about an M&A Case study involving WhatCounts had a couple of provocative thoughts in it from CEO David Geller.  The second one I wanted to address is whether or not you should have take on institutional investors and have a Board.  As David said in the post:

Fewer outsiders dictating (or strongly suggesting) direction means that you will be able to pursue your goals more closely and with less friction

Although I have a lot of respect for David, I disagree with the notion that outsiders around the Board table is inherently bad for a business, or at least that the friction from insights or suggestions provided by those outsiders is problematic.

While that certainly CAN be the case, it can also be the case that outside views and suggestions and healthy debate, as long as incentives are aligned, people are smart, and founders manage the discussion well, can be enormously productive for a business.  I recognize that I’ve been very lucky that the Board members we’ve had at Return Path over the years have not been dogmatic or combative or dumb, but I do think selection and management of Board members is something very much in a CEO’s control.

But beyond the issue of who sets the agenda, Boards create an atmosphere of accountability for an organization, which drives performance (and many other positive qualities) from the top down in a business.  Budgeting and planning, reporting on performance, organizing and articulating thoughts and strategy – all these things are crisper when there’s someone to whom a CEO is answering.

As a telling case in points, I’ve known two CEOs over the years in the direct marketing field who have more or less owned their companies but insisted on having Boards.  While I’m not sure if those Boards had the ultimate power to remove the owner as CEO (which is the case in a venture-dominated Board and of course an important distinction), I do know that having a Board served them and their organizations quite well.  The fact that they didn’t have to have “real Boards” but chose to anyway – and ran spectacular businesses – is a good controlled case study for me in the value of this discipline.

  • charliecrystle

    I like having a board, quarterly meetings, monthly progress reports, and one-on-one phone calls because it puts me in a rhythm of accountability to the company. The day to day can pull you away from the big picture, but the rhythm keeps you in time with it.

    I like being able to call a board member and talk about specific issues, or the high level, or to hear their perspectives about the company, sector, strategy, etc.

    What I don't like is having one or more weak board members. The guy who talks just to show that he knows something. The woman who was more interested in impressing investors than moving the company forward, etc.

    • Matt Blumberg

      Weak Board members are awful.  And they’re notoriously bad at taking feedback.  All you can do is give the feedback, and if they don’t respond, try to replace them.  Aggressively, if need be (even VCs – their firm can still have a vote, just with a different person casting it).

      • charliecrystle

        I agree. It's tougher on the VC front, because it can create an unhelpful tension when you need internal support, but it is what it is.

  • http://www.migrationbox.com Eduardo_F

    How about startups when you don't need to have a board (bootstrapped or angel funded)? When does it make sense to have one? Insurance, etc is a significant expense for a small startup.

    • Matt Blumberg

      That’s my whole point.  You always NEED one.  But in the really early days, it can be small (one outside member), and D&O can be cheap and limited in coverage.  If the company indemnifies directors, that at least limits their personal risk.

      • http://www.migrationbox.com Eduardo_F

        Got it. But then the question is… as a budding entrepreneur who's just getting started, how do you get that person that's going to impact your business in your board? Assuming there's rapport, what are other important factors? Is location important?

        • Matt Blumberg

          I wrote a little bit about this a few years ago here – http://www.onlyonceblog.com/2004/07/the_good_the_… – but that doesn’t entirely answer your question.  You have to recruit for the role like you recruit for any senior hire.  Don’t be shy.  State your needs, demands, and interest.  Meet a bunch of people.  Pick your favorite, check references, woo him or her, and figure out a comp model (usually equity) that makes sense.  Location is more important in the early years when you’ll meet more frequently, but it’s not a deal-breaker. 

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