An entrepreneur recently asked me, “What makes a great board member?” as she is in the process of putting together her board. About the same time, a fellow VC lamented about a miserable board meeting they had just attended, and why it was so bad. The questions are two sides of the same coin. A great board is the result of having great board members. Bad board meetings are the result of ineffective or unqualified board members. So what does make a great board member?
- Great Judgment
Judgment is a must. In many ways, it is THE job of a board member. A board member with solid judgment keeps you out of trouble and helps you navigate difficult situations. They can help you make the right decision about strategy options, hiring and firing, financings, M&A opportunities, legal issues, organizational design questions, etc. If you have a board member who doesn’t have the experience and gravitas essential to good judgment, you are doing yourself, your company, and your shareholders a serious disservice.
- Relevant Context
A great board member needs to have as much relevant context as possible in order to offer actionable and on-point advice. There are four key areas of relevancy:
- Industry – While someone can be a great board member and not be from the same industry in which the company operates (sometimes it’s not a bad idea to have one board member who is from outside your industry, for perspective), it helps if most board members do have industry context in some form (customer, supplier, academic, etc.). It’s too hard to train a whole board on all the nuances of an industry, when decisions have to be made with alacrity using the best insights possible.
- Business Model – There are many subtleties in any given business model. These nuances can greatly impact strategy, accounting/finance, cash flows, etc. For example, a board member who understands consumer sales may not be able to offer great advice or help make the best decisions for a company with a Software-as-a-Service business model.
- Stage of Business – This is more important than it might seem, and is also a driver for board changes over time. Just as different stages in a company’s development may require different executives, the same is true of board members. A Fortune 500 CEO isn’t usually a great choice for a startup, just as a former CEO who ran a $50M company may not be great for another that has reached $100M and is still growing fast. You want board members who have “seen the movie before” and have a pretty good idea of what is around the next few corners as your business grows.
- Function – It really helps to have board members who have expertise in functional areas import to the business (i.e.: development, sales, marketing, finance, international operations, etc.) to share foresight about future challenges and opportunities your company may face in their respective areas of expertise.
To have great judgment, wisdom is pretty essential when making critical decisions and thinking strategically about the future. Note, both wisdom and judgment are usually the result of lots of experience in tough situations, some failure, and strong intelligence. For example, M&A activity as either a buyer or a seller is one of the most challenging situations for a board. It’s hard to be a wise board member who can give valued and thoughtful counsel about an M&A transaction, if they have not been through several themselves. MBA courses and avid consumption of Barbarians at the Gates or the like is no substitute for having sweated out a few tricky negotiations. Unfortunately, the combination of both lack of wisdom and deep experience in a new board member gained via a recent financing is one of the most frequent complaints I hear. When seating a new board member via a financing, insist on a partner who brings real wisdom and experience to the table.
- Motivation and Interest
Board work is hard work. There can be a lot of meetings, especially with committee duties, homework, and times when very difficult, delicate, and challenging decisions must be made, often concerning people. As a CEO, you need and deserve an engaged board member who is always motivated to look out for the company’s best interests and actively promotes those interests at all times. Being a great board member means being an active evangelist in the ecosystem, sharing your network, and keeping your eyes peeled for opportunities when you can best promote the company. It also means being actively engaged. I am familiar with a company that is currently experiencing some very serious leadership and execution challenges. It has a very well-known, even famous, lead board member. From my remote perch, I can see what’s coming and that this company’s future is in serious jeopardy, but the lead director isn’t addressing the issues — it’s not even clear he sees them. Don’t confuse fame or stature with being engaged, motivated, and committed.
This is less critical than some of the others, but ultimately a board member’s style should be compatible both with that of the CEO and with the other board members. This does NOT mean they always have to agree with you, or be your buddy. It does mean that they know how to effectively communicate with you and the other board members, are able to constructively address issues, and be civil yet still direct and transparent. Ultimately, you need your board to be able to collaborate and work well together, and with you.
- Effective Coach, Mentor, and Sounding Board
An often under-appreciated role for board members is that of coach or mentor. A great coach or mentor doesn’t usually tell you what needs to be done or how to do it. In Socratic style, they ask questions and pose challenges designed to help the CEO see problems that they may have not identified, to look further ahead than the CEO may be currently looking, or to encourage a different perspective. Board members in this role should also be good listeners, offering the CEO a sounding board to test ideas, concerns, etc. Often, because the CEO doesn’t have anyone they can turn to inside the company for various sensitive issues, they need a person that is involved, but also somewhat removed from the day-to-day activities, to bring fresh but applicable perspective.
Maybe THE most unappreciated trait. Your board members need to have the courage of their convictions, as well as the courage to face up to hard truths (some of which might be about you!), and to make tough calls when the answer isn’t always obvious and when there are considerable consequences if the call is wrong. A specific example from my past: while I was a public company CEO, our auditors pushed hard to complete expensive, invasive and, in management’s and the board’s opinions, unnecessary audit work. This was during the early days of Sarbanes-Oxley, when there was a great deal of witch-hunting, lawsuits, and debate about board members’ personal liability. Most boards ran scared and allowed accounting and legal firms to run amok with excessive zeal and commensurate fees. The head of our audit committee could have rolled over and protected himself by allowing the over-reaching work, blaming it on “transparency” versus CYA. Instead, he did what was right for the company and the shareholders, and refused to support the excessive audit activities and associated fees (which would have cost several million additional dollars). His experience told him the work scope was unnecessary and wasteful, and he had the courage of his convictions to say “no!”
There are other desirable traits – a strong network in your industry, deep experience around a very specific issue or challenge you face, strong ties in the financing and banking community — but the seven presented here are, in my opinion, the most important core attributes of highly effective board members.