Create a board, not a country club

March 10, 2014

Create a board, not a country club

“It’s work… It’s not an invitation to some country club.” —David Litwiller, on board responsibility.

At last Wednesday’s Entrepreneurship 101 lecture, David Litwiller, executive-in-residence at Communitech, outlined the differences between boards of directors and boards of advisors. He also spoke about the responsibilities of boards of directors and what entrepreneurs should expect from their boards.

Differences between governance teams

One thing that David made clear is that the role of a director is no walk in the park. The three key things to know about directors are as follows.

  • Directors have several obligations to their startups, under both statutory and case law.
  • With those obligations comes liability—that is, personal responsibility—for what happens to the company, and in some cases within the company (for example, making sure that staff members are compensated).
  • The time commitment of a director is significant, with an average expected commitment of 250 hours per year.

Advisors, on the other hand, have less legal liability and responsibilities attached to their roles. Even if an advisor is very committed to his or her startup it’s important that he or she does not become so involved in the company that the lines between his or her role and the role of management become blurred.

Board of director responsibilities

Among other obligations, the board of directors is responsible for:

  • mentoring and supporting the CEO and evaluating his or her performance;
  • selling the company and being aware of what is valuable to both shareholders and buyers;
  • making sure that the company does not run out of cash;
  • communicating with shareholders; and
  • deliberating strategic shifts.

Board function and growth

There are a few characteristics that you can use to identify a good team of directors. Generally, good directors:

  • know how to make good decisions without requiring too much data, but also know when to ask for more data;
  • do not gang up against their company’s CEO; and
  • forewarn the CEO about their stance on major issues and ask important questions in advance of meetings.

A board of directors needs to evolve in size and skills to match the evolution and growth of the company that it serves, as the needs and challenges of a company will become more sophisticated over time. Three years is the typical term limit for any board member, and directors should be networking to develop new candidates.

David recommends keeping a few high-impact board practices in mind.

  • Startup/seed stage: Pivot effectively, manage risk and catalyze learning.
  • Growth stage: Correct quickly and easily, and focus on impactful ideas.
  • Late expansion: Accelerate time to productivity.

This is just the tip of the iceberg when it comes to boards of directors, but as David said in his lecture: “Once you’re on the board, it’s all about what’s in the best interest of the company.”

For more advice on what to look for in a board of directors and for tips that can improve your board’s performance, check out the video from David’s lecture.

http://vimeo.com/88406643

Produced by MaRS.

Next lecture: Financial Planning/Budgeting on Wednesday, March 19, 2014.

Please note that there will be no lecture on March 12 due to March Break.

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