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Leadership calendar    Apr 20, 2021

Why Growth-Stage Companies Need a Board of Directors

The establishment of a board and basic board governance can help a company move more quickly, execute more strategically and run more efficiently.

The face of many corporate boards is changing, but the value they bring to their organizations remains as vital as ever.

According to the 2020 U.S. Spencer Stuart Board Index, which analyzes governance trends across the S&P 500, public boards are increasingly diverse, more focused on specific skills than ever before and embracing more independent voices. Nearly 60% of new public company directors last year were diverse (women and minority men), 47% were female and 28% were serving on their first corporate board.

This is not unique to public companies, of course, but for high-growth company boards, this issue goes beyond demographics to highlight the need for specific skills and sector expertise. There is great value in diverse viewpoints in the boardroom, whether those views are coming from different backgrounds, different points of view or different experiences. This is especially true for early stage and high growth businesses, where strategic pivots and a relentless pace of change will require different skills and perspectives in the boardroom. Too much of any one perspective doesn’t help anyone, particularly when the shared goal is scaling a growth-stage company.

And, while it is possible to form and grow a company without appointing a board of directors, that is an enormous missed opportunity. It might sound daunting at first, but the benefits of forming a fiduciary or advisory board substantially outweigh the challenges.

The benefits of establishing a board of directors early in the company’s journey include:

  • Network Access: Board members typically bring relevant and valuable connections to the table to help the company accelerate hiring, and access sales and partnership opportunities that they would otherwise overlook. Often, board members are the source of a company’s customers.

  • Legitimacy: Recruiting well-known industry leaders to your board lends credibility with prospective customers and partners, press and analysts, and potential investors. It’s a signal that your company not only knows what it is doing, but that other respected names in the industry believe in you and want to lend their support.

  • Capital Formation: A board made up of directors with financial backgrounds can help you determine readiness for funding and match the amount and types of capital with the company's strategy and objectives.

  • Time Savings: Your board members have “been there” and “done that,” so they can help management make faster decisions, avoid pitfalls, and serve as a sounding board for new ideas. By bringing together directors with different backgrounds and skill sets, the board can help your team more quickly get up to speed on important topics to help the business grow.

  • Operating Discipline: a purposeful by-product of creating a board, is that it naturally increases the alignment and accountability of management teams through systematic board governance and reporting functions.

  • Mentorship: A strong and experienced board helps make it not so “lonely at the top” by serving as a sounding board and trusted group of advisors, along with its fiduciary responsibility. In addition to providing strategic and operational advice, savvy business judgement, good governance and financial insight, effective board members quickly earn the confidence of their CEOs as safe and trusted advisors.

That said, understanding the limitations of the directors’ role is equally important. Establishing strong governance does not mean management is giving up control over how the company operates. The job of the board is not to run the company, rather to ensure the company can execute on its plan and advance toward its goals. Setting up basic board governance practices includes establishing goals for management, tracking management’s ability to hit those goals, and leveraging the board’s expertise to overcome areas where the company may need help.

All in all, the establishment of a board and basic board governance can help a company move more quickly, execute more strategically and run more efficiently.

When Investors Get Involved

Once a company grows and matures to the size where investors are getting involved, it becomes less optional to have a board in place. Often, investors will require one or more board seats as a condition of their investment.

At Edison, we believe strongly in the power of an experienced board of directors to help drive long-term growth, which is why we created the Edison Director Network (EDN). This group, which consists of leaders of current and past Edison portfolio companies, brings the power of C-level operational expertise to current Edison portfolio companies in the form of board directors, mentors, or consultants. Tapping into our highly curated network of more than 250 executives and board directors, we work with the company to nominate someone who can deliver unparalleled expertise, whether the need is for someone with deep industry domain knowledge and a rolodex, a former CEO intimate with a specific business model, or a former CFO with M&A and/or IPO experience.

For more than a decade, Edison companies have proven that the EDN not only professionalizes and upgrades a board, but can also transform the board into a strategic weapon that drives growth.