Setting up a board of directors with independent directors takes a startup to another level—a level that will assure prospective investors of your young company’s commitment to its future, backed by accountability and oversight. The board can also provide financial discipline, strategic guidance, and fill in skills and expertise gaps to take the company further than it’s been able to so far on its own. While making the decision to form a board may come easy to your startup, what the board should look like can take time to sort out. To begin the process, here are some key questions your startup should be asking.
Who Should Serve on My Startup’s Board?
A startup’s board becomes a critical part of its foundation, which future and existing investors are probably looking for (and may even want a board seat for themselves). Initially, you may have a few people in mind for your board, such as the CEO and a top investor. You’ll also want people who have had board experience and perhaps a successful entrepreneur who knows the industry, or at least what you’re going through. At the same time, you may want to seek out people who do not have much if any board experience, so that you can cast a wide net as you seek to develop a diverse board.
How Should the Board Be Organized?
Early-stage companies have more flexibility here than publicly traded companies (whose boards must be mostly made up of independent directors and include an audit committee, compensation committee, and nominating and governance committee). What you decide now will certainly change over time as the company’s needs change. A few considerations:
- Number of directors: Boards tend to range from 3-9 members—your startup’s number should be manageable and will likely expand as you add on committees. An odd number is recommended to avoid a voting tie.
- The chair: Will this be the CEO/founder? How will this role be appointed and dismissed?
- Terms: How long will each director serve, and how often can terms be renewed? If terms expire at the same time each year, you’ll be able to conduct an evaluation of the board in connection with the renewals.
Looking at the composition of the board, consider how they will be empowered and possess the collective capability to provide strategic direction and oversight to the company. The board will need guidelines to work by to ensure this happens.
What Roles and Committees Should My Board Have?
The roles and expectations of board members should be set when they join the board. This includes their committee assignments, their understanding of your company, their overall mission, and how often they will be meeting together remotely and in person. They’ll be busy as they set the wheels of the company in motion, from setting stock and compensation plans, guiding the company, helping to hire senior leadership, and influencing strategic changes.
How Do I Evaluate My Board?
The board chair should drive the annual board evaluation process, which can be conducted by the nominating and governance committee if you have one. This should be done annually and could be effectively done if the board starts with its own self-evaluation. The findings shared by the board could bring up issues not everyone has considered.
What Else Should I Be Thinking About?
This is a question a smart CEO/founder asks early and often—because you don’t know what you don’t know. This is also why a diverse group of board members can be an invaluable resource as they, like you, want the best for your company and its future.
Conclusion: How Should I Start the Process of Establishing My Startup’s Board?
A great board of directors will help senior leadership avoid mistakes and gain best practices, while filling in knowledge and experience gaps and ensuring proper governance. They’ll help the company work through major decisions that can have a long-lasting effect on where the company goes next.
The questions we’ve listed here are just a starting point. The roadmap your startup needs will be tailored to your specific company, industry, and leadership makeup. At RoseRyan, we have helped hundreds of startups scale and grow, and an active, insightful board of directors is essential for making that happen. We can help your startup by helping you think through the board composition, the roles and committees necessary at this time, along with issues you may be overlooking or are not aware of yet. Reach out to our team today to start the process for your startup.