Does my company need a formal board of directors?
While the answer to this question varies depending on the unique growth stage and opportunities of each company, this is a question every founder asks at some point – often with great reluctance.
Understandably, many founders are less than keen on the subject of board recruitment. Stories abound of founders who were pushed out of their companies by the same board they brought on to advise them and help grow the company. Apart from the possibility of loss of control, many founders view boards as little more than a bureaucratic waste of time.
However, boards are not necessarily set up to rob a founder of their well-earned success and push them out of their company. Neither are they solely bureaucratic organs that introduce unnecessary foot-dragging and red tape into growing companies.
Many founders actually look back at the founding of their board as a critical moment in the long-term growth and success of their company, as well as their personal evolution as business leaders.
When properly recruited and managed, board leadership represents an asset for most companies, providing the experience and industry-competence needed to scale effectively. As a result, the question often isn’t whether board recruitment is good, but whether it is necessary considering the profile, growth stage, and specific goals of the company.
Are you considering the merits of recruiting a formal board of directors for your growing company? Here, we explain the options available for company boards and best practices for identifying and recruiting an effective board of directors.
The value of board recruitment
A formal board of directors is a group of individuals appointed or elected to represent the interests of the company as a whole. They support the management team with niche-specific knowledge and experience, and generally help implement good corporate governance standards.
Most companies start out with a board of directors. To incorporate a company in the majority of countries around the world, there must be a board of directors – often with a requirement of at least two or three individuals on the board. However, these boards often operate informally, especially in the case of startups and early-stage companies. Privately-held companies that bootstrap their way to success may be able to meet operational challenges and scale at their own pace without needing the input of a formal board.
Formal board leadership often becomes necessary when the company is considering significant strategic moves, such as an IPO or a large funding round. Businesses that face significant threats or operate in an industry with rapidly-evolving growth opportunities may also find a board very helpful. In such situations, board leadership can provide extremely valuable guidance and support to the management team in navigating these challenges or exploiting available opportunities.
Formal board leadership is critical to success for many companies, as the skillset provided by experienced board members can decide the overall strategy and trajectory of a business. As McKinsey reports, the presence of an effective board can be key to growth-strapping a business with exceptional potential and laying the foundations for a high-performing company.
Types of boards you can consider
The question of board recruitment is far more fluid than most founders expect. You can recruit a formal board of directors that operates within as narrow a sphere of influence as you desire. Or you can create a board that introduces the highest standards of corporate governance and to which you are essentially accountable to.
Board recruitment is never an “all-or-nothing” situation. Rather, there are several mutable components that can be reorganized and adapted to suit the specific goals you have for your company, starting with a range of board types you can consider.
- Fiduciary board: This is a board of directors in the common sense of the term. A fiduciary board functions in a formal capacity, with decision-making powers and usually with the authority to broadly question management decisions. Founders may elect to form a board of this nature to demonstrate good corporate governance and oversight practices that will appeal to investors. There will typically be two options to consider when creating a fiduciary board – founders may opt for a majority of independents, or an independent minority. Boards with a majority of independents are typically found in large privately-held companies and public companies. These boards exhibit a high degree of objectivity and are more likely to drive the company’s strategic agenda. On the other hand, fiduciary boards with a minority of independents aim to keep the number of outsiders low, with board seats mostly limited for people known to the founder or those already within the company. This can be a more comfortable option for founders that want to maintain control over the company while transitioning to more independent oversight.
- Advisory board: Compared to a fiduciary board, an advisory board operates in a less formal context. The primary function of this board is to provide high-level expertise and outside experience that the founder and their management team can draw on. These boards present an acceptable compromise between gaining the benefit of outside support on a broad range of issues and maintaining authority over the day-to-day operations and strategic vision of the company.
- Board of insiders: A board of insiders is typically composed entirely of individuals already known to the company – usually drawn from senior management and shareholders. In many respects, this board is hardly distinguishable from any other senior management group. It however provides a good platform to test-run the idea of board recruitment and provide a foundation for future steps towards formal governance. A board of insiders can be a good option for founders that want to transition the business to known individuals, or get the next generation of family owners more closely involved with the company.
Each of these board types presents different governance profiles that can be adapted to the growth stage of the company and the goals of the founder.
Rules of effective board recruitment
After deciding which of the board types makes the most sense for your company, the next step is the actual process of board recruitment. Here are key rules of board recruitment to keep in mind:
- Recruit the best: Board recruitment should be approached in the same way that you would approach recruitment of senior management or key employees. It is important to populate the board with individuals who offer beneficial attributes in terms of experience, skillset, and diversity.
- Look beyond investors: While investors typically lobby for board seats, especially after participating in early funding rounds, be careful about automatically giving in to these demands. Your board should be representative of where you want to go as a company, and it should be populated with individuals that will help achieve this goal, not just occupy board seats to look after the interests of a specific share class.
- Keep it small: For a first time board, any more than eight directors is probably too much. You should aim for between five to eight directors to ensure a good mix of diverse opinions without overcrowding the boardroom.
- Prioritize personal fit: Teams that work well succeed not just because of their unique skills but also due to their chemistry and compatibility. The same principle holds true for board composition. Go beyond just considering the resume of candidates to also determine if they would be a good fit for your board profile.
To address concerns over potential loss of control or clash in authority with the board, it is important to be crystal clear about the extent of the board’s sphere of control. With unequivocal delineation of board authority and decision-making power, usually codified in corporate by-laws, founders can regulate the extent of board involvement in the company’s strategy and operations.
Colleen Brown is a seasoned CEO and executive director of public companies who has helped boards find diverse executives and board members. She recommends expanding the confines of your search to find those talented candidates who can easily slip under the radar if you don’t know what to look for. “It is important to broaden the scope beyond the traditional CEO and CFO backgrounds by recognizing that the complexity and needs in the boardroom have grown and changed over time,” Brown says. “For example, by considering [candidates with experience in] CMO, CRO, and CHRO positions, the number of diverse candidates [in your pool] can grow significantly.”
While recruiting a board of directors can feel like a prelude to loss of control or authority over the strategic direction of your company, this is not often the case. Many founders actually look back at the founding of their board as a critical moment in the long-term growth and success of their company, as well as their personal evolution as business leaders. The most important thing is to understand the various ways board types can be adapted to your company profile so you can accurately tell when you’re ready for a board of directors.
The Center for Board Excellence is an excellent resource for corporate governance, producing board assessments and related governance and compliance materials.
Board Recruitment & Executive Search
Board leadership decides the overall strategy and trajectory of your business. Weak leadership in these important positions leads to inefficient management, poor recruitment, and at worse, business failure. For lasting business success, you need to recruit and develop strong board leadership within your company. Companies often struggle with succession planning for their leadership board, though. Board members are too busy handling business needs to search for promising candidates to fill open positions. This is where Cowen Partners board recruitment and succession planning services come into play.
Cowen Partners has extensive experience helping businesses build strong board leadership. From board recruitment and CEO succession planning to identifying director effectiveness, we can help you with any of your executive board search needs. When working with clients, we create a customized experience to find the best board candidates based on a company’s needs. We carefully identify skill sets and backgrounds that would benefit your team as well as determine which candidates align with company values and goals. Our accomplished team also has experience with a wide variety of industries from consumer goods and financial services to healthcare and many others.
No matter what industry you work in, it’s imperative to have a seamless transition when one board member leaves and a new one comes in. A vacant board seat only results in business setbacks and makes it more difficult for the incoming board member to adjust to the role. Stay on top of the recruitment process by hiring an experienced national search firm to fulfill your board recruitment needs. Below are some of the services we offer as well as an explanation of how each one of these services will benefit your company now and in the future.
Board Recruitment Services
When built effectively and run efficiently, corporate boards are a strategic asset and a source of continuous competitive advantage. A board with a portfolio of competencies and intellectual capital aligned with your organization’s toughest strategic and operational challenges will deliver the edge to drive continuous shareholder return.
At Cowen Partners, we know how to locate the candidates who will further your business goals and strengthen your board portfolio even more.
With pressure on boards relentless and growing from shareholders, regulators, and the media — expectations are high. Proven top leadership is a powerful strategic asset, and there is no room for error in the selection of directors.
- Analysis of required board competencies
- Identify non-conflicting director candidates
- Establish an appropriate timeline for the search
We work closely with boards to understand strategy, culture, composition, and the skills needed and then partner with our colleagues with deep industry expertise – including diversity, technology, and finance to identify the right candidate.
Cowen Partners Executive Search & Consulting
Cowen Partners is the nation’s executive search firm, enabling companies to harness the power of human capital to fuel their success. Cowen Partners gives our clients access to the top 1% of human capital to create opportunities that accelerate their growth and market share. With Cowen Partners, clients can grow at scale, create value, and drive results with world class talent.
Our clients are both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Clients are typically $50 million to multi-billion dollar revenue Fortune 1000 companies or have assets between $500 million to $15 billion. Successful placements span the entire C-Suite and include VP and Director level leadership roles.
With our proven processes and guaranteed results, we have successfully placed hundreds of candidates in industries including technology, healthcare, manufacturing, retail, financial services, and private equity.