• Insights

We’ve come a rather long way from the humble beginnings of what a company once stood for—it was meant to represent a team of people who went out in search of some rather audacious goals. The structure of a company ensured that the stakeholders knew it was a risky proposition, and if gain were to be found, it would be shared in a fair, pre-agreed upon manner. The maiden voyages of Europe in search of new land, and the gold rush in North America spawned a lot of companies. Times have changed; the structures of companies have evolved, and so have the issues.

While there is much said about how men and women become entrepreneurs to be their own bosses, this couldn’t be further from the truth. The founders and management team are still accountable to the board. In a lot of ways, the board of a company defines the direction that the entity sets sail in.

Typically, the board of directors of any organization represents the interests of the stakeholders in ensuring that they are not dealt a wrong hand in any of the finer operational details of the company. That said, there is a delicate balance that each of the directors performs to ensure that the management team (and, if around, the promoters) is also taken care of, without which the value creation process comes to a grinding halt.

I have played both roles, as the director on the board of a few companies as well as a promoter. And it is interesting to note how distinctly your perspective changes. On one hand, you are entrenched in the details of everyday operation, in the larger vision of the entity, and in execution; on the other, you play the role of the guardian, picking between conservative and aggressive approaches as the teams present their goals. It is, therefore, essential for any entrepreneur setting up an enterprise to pick their first set of directors carefully. Here are some points to keep in mind while doing so:

1. Vision
Spend enough time with the individuals you are considering to understand if they resonate with you on the vision of what you are setting out to do. Regardless of the skill sets, there is very little you can derive from someone who doesn’t have insights on the industry you are operating in. Experience does not always equate to vision; the ability to think and be ahead of the curve is what matters. This is the foremost criterion that you cannot overlook in a candidate.

2. Empathy
How well do you know the candidate? While boards in their functionality are set up to ensure that they represent the best interests of stakeholders, they must realize that the promoters are also majority stakeholders. And, most of all, they should be onboard with the vested interests of control and ownership, and also have the empathy to balance viewpoints and decisions—this becomes crucial in the long run. You don’t want to be or invite a John Sculley who is forever begging for forgiveness from Steve Jobs.

3. Maturity
Soon enough in life, you realize that the answer to most of crucial decisions is “it depends.” The only compass that a director has to make the right decision and guide you through a decision without getting entangled in the mess of politics, as opinions fly from all directions, is his maturity. This quality will simplify your life.

4. Experience
All said, experience does matter, especially when it comes to knowing what works and what doesn’t. The experience of being in the trenches, of having executed projects and managed teams, of understanding processes and evolutions makes someone a crucial asset as you venture out. You don’t have to make all the mistakes yourself—you can learn from someone else who has already made them.

5. Reputation
It is my strong belief that the valuation of a company, as it starts out, is a function of the idea, the timing, the team and, to a large extent, the directors on the board who guide the team. The reputation of the directors who have been in the industry make a statement that this is a team that’s willing to learn, adapt and succeed.

6. Availability
In the early stages of a company’s growth, the availability of the directors becomes a crucial factor in establishing a culture and a closeness to ensure that everyone is contributing. If someone doesn’t have time to handhold and sculpt strategies during the early stages, do them a favor and bring them in a bit later, if it makes sense to do so.

7. Diversity
Diversify the board with people who bring varied perspectives on a common topic. As they say in M-theory (the theory that was to be the equation for everything in this world—and ended up with three variants), the world can be seen through more than one reflection to represent the same thing. So, bring in people who have seen different reflections—be it in academia, commercial, or research backgrounds from the same vertical. A difference in approach and stage would definitely help.

8. The Right Size
When scaling up a team, anything more than an inflow of 20 percent of new employees tends to topple the culture of a company. That goes very much for the board as well. Ensure that you bring in a few very select folks on the board. As you grow and as the board aligns with the overall goals of the company, the board itself would help identify gaps and bring in the right set of folks who can continue that culture. Do not top load the board from day one; grow organically and evolve.

9. Timing
Bring in the right person at the right time. The right person at the wrong time is going to be a disaster—they would be idling when they could be an asset to the company during the growth stages. Knowing when to bring in whom makes all the difference. A company also requires various skill sets at its various stages of growth. When new board members are added as needs evolve, make sure you re-look at some of the early board members who might be becoming idle as the company has moved onto a path beyond their capacity. Plan for a smooth exit of such board members and make sure you cycle through regularly.

10. Management Style and Value System
If you’ve ever worked with entrepreneurs, you’ll know that management styles differ. There are those who shoot first and then ask questions, those who plan tediously and execute within the boundaries, those who are great managers… and there are shades of gray everywhere in between. Find those few vocal members on the board who understand your management style, or there will forever be war in the board room. The next crucial element to be aligned on is the value system of corporate governance and what it means to each of you. It is my strong belief that not only should companies set vision statements, but value systems too should be defined early on—especially on the topic of corporate governance. If I may make a suggestion here, bring in board members who set standards for value systems higher than you have had prior experience in; if there is one thing that pays off in the long run, it will essentially be that.

As my mentor once put it, talent can take you to the top, but it is character that keeps you there.

This is the first of a series that will dive into the nuances of setting up and managing your board.

Vijay anand is known as The Startup Guy. He has been a serial entrepreneur since the age of 16 and was, until recently, the head of the Incubation Centre at IIT (RTBI). He is the founder of The Startup Centre and serves on the board of a few companies. He can be found on Twitter @vijayanands.

©Entrepreneur May 2011

Tags:
board, company, directors, Insights