Aug 29, 2024
We recently published an article exploring the four Cs of good board governance: Culture, Communication, Connectedness, and Continuous Improvement. Even when these elements are in place, a board is only as effective as its members are willing to make it.
Solidifying the board’s foundation requires active engagement from each member. To help facilitate this engagement, we’ve compiled a list of eight questions to ask around the board table to ensure a strong alignment:
- How do we achieve a unified mentality in the company’s best interests, while serving our various individual interests?
A typical board of directors will feature multiple types of stakeholders: investors, the CEO, management team members, independent directors, and/or observers (more on this in a future article). It’s important to understand each board member’s role, as well as the entity they may represent. While each director may have unique interests, the board must still operate with the company's best interests in mind.
2. Are we aligned around the table on company expectations for outcome and timing?
Related to Connectedness, the long-term vision of the company should be the board’s north star. It is critical that the board remain aligned on capital formation and exit strategies and answers to such questions as:
- Do we need or want to raise capital?
- How do we want the business to be valued?
- What do we need to do to drive a premium valuation for the next round or liquidity event?
- What are investor return expectations?
- What is our timetable for a liquidity event?
- Are we prioritizing a strategic or financial buyer?
Driving alignment on these and other related strategic questions ensures that all insights, recommendations, and actions are geared toward the same end outcome.
3. Who shall we elect as Chairperson or Lead Director and key spokesperson to the CEO?
At Edison, we recommend that all of our portfolio companies appoint a Board Chair or Lead Director. Among other key responsibilities, the Chair and/or Lead Director of the board sets the agenda, timing, and tone for board meetings, as well as serves as the primary point of contact between the CEO and the board. In other words, the Chairperson is critical to steering the board – and, thus, the company – in the right direction, and all board members should have a say in who takes on this role. In a later article, we will dive further into board design and key roles.
4. What skills are we missing on this board, based on company strategy and needs?
In this episode of Electrifying Growth, EDN member Tricia Han advocates for structuring your board like a K-pop band: “K-pop bands are very strategic. Every member plays a particular role, whether it’s as singer, rapper, dancer, or spokesperson. Just like a K-Pop band, each member of your board should bring unique skills or expertise.”
Ideally, all board directors possess skills, experience, expertise, or other resources that are directly relevant to the company at its current stage of growth. This is why it is particularly important to strategically place independent directors who have relevant industry and operating expertise. If, for example, the company is facing a challenge with subscription pricing, packaging and contracts, a board member with deep SaaS business model experience can be a guiding force and offer valuable insights.
5. Do we have a process by which we review enterprise risk? In the event of a crisis or high-risk situation, how shall we conduct ourselves and vis-à-vis the CEO?
One responsibility of the board of directors is to identify and help mitigate risks to the business. Consider a scenario in which a company’s primary supplier is unable to meet demand due to an environmental or geopolitical disruption. The board (or a special committee of the board) can work with the CEO to get ahead of this risk and establish relationships with alternative suppliers to avoid delays or other business interruptions. In high-risk situations like these, the board may need to operate differently in relation to the CEO and management team; having a plan for this ensures a smoother transition should a crisis arise.
6. How do we avoid outsourcing all issues and communication to just the Chairperson and CEO?
While the CEO is ultimately responsible for the success of the business, and the Chairperson for the direction and focus of the board, every board member has a role to play in moving the business forward. Clarifying roles and responsibilities based on each individual’s area of expertise can help avoid piling everything on the CEO and Chair.
We recommend establishing board committees that focus on key areas of the business, with each board member assigned to the committee(s) where their experience is the most relevant. The most common board committees are the audit and compensation committees, but special sub-committees can also be established for specific circumstances and opportunities. We will explore committees more in a later article.
7. What are the criteria for making a CEO change?
The CEO is accountable not only to his or her team but also to the board. The board should establish clear objectives and expectations for the CEO early on, as part of each year’s plan, and ongoing as the business evolves. Regular board director assessments of the CEO should answer the following questions:
- Is the organization and the CEO meeting or exceeding the metrics that were laid out in partnership with the board? If not, why not?
- Are revenues and business fundamentals progressing as per the long-term strategy?
- Is there enough operational stability within the organization to support the company’s long-term plans?
- Is the CEO representing the company as it needs given the current stage of growth? Is he/her the right person for the job today and (hopefully) down the road?
As with any evaluation, CEOs deserve candid and timely feedback on their performance and any areas requiring improvement. If the CEO fails to meet expectations or is otherwise deemed unfit for the role, the board must step in and make a change.
8. What are the criteria for making a board member change?
On the flip side, board members are also accountable to the CEO and management team and to each other. If a board member is failing to meet expectations or his or her skill set is no longer relevant to the company, it may be time for a change. Board members need to consistently ask themselves:
- What skills and capabilities do we need to help the company scale?
- How might the composition of the board need to evolve to accomplish this?
Best practice is to conduct a board assessment annually. This typically includes a full board evaluation, a director peer review, and an individual director self-assessment. Evaluation and evolution are two of the hardest things for a board to do, but they are critical to ensure the company gets the most value possible from its board.
Asking the right questions around the board room ensures alignment and strengthens the board’s foundation. Every board member is responsible for creating and sustaining healthy and positive board dynamics so that it can effectively function as a strategic weapon for the business.
