Running an Effective Board of Directors
Louis Lehot, business lawyer and partner at Foley & Lardner LLP in Silicon Valley, and formerly the founder of L2 Counsel, P.C.
By Louis Lehot
Companies usually run informally at the pre-seed and seed-stage, without formal meetings of the board of directors. However, once your business closes its first round of formal venture capital financing from a professional investment firm, and one or more venture capital partners have joined your board of directors, the meeting process becomes more formalized.
Meetings of the board can enable positive and productive relationships with your investors and experts, where you can gather meaningful and valuable feedback. The following are some thoughts about how to structure and run an effective board process to drive a productive discussion and build trusting relationships.
Cadence and frequency. In terms of cadence and frequency, no one size fits all. You want to strike a balance keeping everyone engaged, but not so often that preparation becomes a chore. Quarterly? Monthly? Six times yearly? All depends… Too much detail and your board members will be driven to distraction, start reading emails, and become fidgety. Meetings should ideally be shorter than 3 hours, cadence and frequency should be calendared for at least 12 months out, as members often serve on numerous boards.
How much is enough? Your board members will expect to receive a written presentation at least a few days in advance of the board meeting, and in a template that conveys the critical operating and financial metrics of the company’s trajectory in the prior period. Too much detail and you lose people, not enough detail, and board members can begin to ask questions and take you to places that you are not ready for. A good template for the board deck is essential and can help the meeting stay on track. While there is no single template that works for all companies, it is often a good idea to include a slide that covers highlights and lowlights of the period, the essential items that the CEO has spent time on, milestones achieved, R&D, sales and marketing, customer satisfaction, legal matters, HR matters, headcount, options granted and amounts remaining in the pool, and importantly, a financial report that includes cash on hand versus projections, with a go-forward forecast on when the company would likely cash out. Counsel should consist of draft resolutions for any legal matters for which the board’s approval is required (e.g., option grants, executive compensation, etc.), and a corresponding slide. Finally, be bold about where the company needs help from the board: do you need help locating talent, a connection to a customer, or a partnership?
No surprises. A successful board meeting does not convey a negative surprise. If you have experienced unanticipated headwinds in the development of the business during the period, those updates should be communicated in real-time, by regular phone update calls. Some CEO’s will tell you that they update their board members by phone or in person, at least 7 days in advance of a board meeting. Avoid surprises. It’s the golden rule.
Circulate the board package well in advance. Circulating the materials as far in advance of the meeting as possible is critically important. Your discussion will be more robust if your board members have had the time to read it, and better yet, formulate questions or think of advice to impart to you. Failure to circulate the board materials ahead of time indicates a lack of organization and can create dangerous consequences.
Calibration. A board meeting is different from a meeting of your executive staff or your employees. The meeting should give a high-level overview without getting too deep into the weeds. The information you impart should be carefully calibrated to be an effective and efficient use of time. The tone should be appropriate for the audience.
Candor and inclusion. For a management team to maintain the confidence of the board, the key members should be present, and they should be measured and candid in their presentation. While enthusiasm is appreciated in some circumstances, board members don’t want to have to discount what they are hearing and seeing. They want to see and provide feedback to the whole management team, and they want to hear the straight talk. Your management team should also have some access to the board to be able to demonstrate the quality of the team you are building.
Working sessions. Feedback on critical issues and getting buy-in from the board on major decisions is crucial. Consider developing a practice of doing a working session on a specific topic, whether it’s on product definition, whether to proceed with a partnership opportunity, how to solve a business challenge or the like. Sometimes you can do two working sessions, one in an area where the company is struggling, and another in an area where the company is excelling.
Closed sessions. Offer board members the chance to catch up outside the presence of management, gather feedback on management, and then share feedback afterward.
Following up. During the course of the meeting, questions will be asked, research will be recommended, tasks will be suggested, and someone should keep a running list of each of the follow-ups. Add an agenda item to share the follow-up from the last board meeting at the next board meeting.
Legal formalities. Counsel should also be present to take notes and answer legal questions. Most counsel will do this without charge, at least until a company is in a very late stage and prepare legal minutes and resolutions.
Relationship building. In-person board meetings are a chance for people to build relationships, build trust, get to know each other. Consider scheduling a dinner at your home, or a meal in the office. Consider inviting a star employee who is not otherwise part of the C-suite to join in for lunch with the board. Let the board members see the culture you are building and be transparent. If things work out, you will have a long relationship with your board members and across numerous companies. Don’t lose an opportunity to build a relationship.
An effective board of directors meeting and the process can be a huge asset to your company’s growth.
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By Louis Lehot, Partner at Foley & Lardner LLP, and formerly Founder of L2 Counsel