Structuring Boards for Growth Companies Q&A

1.What is the right balance between executives and NEDs on a board? And who is the best other executive together with the founder?

AB: Normally you have the chief executive and the CFO as executives. But there is nothing stopping you bringing in head of sales for example or a technology person. Typically, with NEDs, the roles you want them to perform are running the audit committee and the remuneration committee. Two non-executives for this might not be enough. It is possible to have the function and not the committee.

LC: a balance of 2 executives and 3 NEDs doesn’t sound too skewed. If you think about what you would have on an operational board and the main board. A board can operate as four just as well but don’t run away from making it bigger.

LG: It is important to have a CFO on the board.

2.How do you approach an investor who asks for observer seats?

LC: The observer seat is not to be feared in my view. It doesn’t come with votes, and it is often a training ground within an investment house. It is someone who can sit at the meeting if the investor director isn’t there. They shouldn’t be a voice around the table as they are just observers. So, invite them to meetings and if they are useful for your business, take advantage of it.

AB: My first question would be, how much are they putting in? They only have the right to receive the board pack and attend the meeting.

LC: They usually turn up but sometimes the investors just want the right to attend. Sometimes they have a stronger voice than the directors.

AB: This means you should be careful about the appointment and set an expectation. If you can review every year, then you could have a conversation with them then if they are being dominating.

LC: Get it written down. If you don’t define an observer role it might overstretch.

3.Early-stage start-ups change frequently. When it comes to setting up a KPI or objective for a NED, this will change in the next 12 months. As a founder, I struggle to set out deliverables. At what stage should you consider adding more roles to the board and how do you say what challenges you need help around to make it valuable, and have space to change the composition?

AB: Board appointments tend to be driven by investment. It is not about at what point you think you should grow the board; the problem is solved for you as you raise money.

LG: Unless the company doesn’t need to keep raising rounds but is looking for skills and how to measure them?

ST: It is different for investor directors. They have bought their seat. They are not there because you have written a specification. You gave gone to raise money and it is part and parcel of the game. You must differentiate between investor directors and others.

LC: If you are there about the roles you want around the table, an investor director may be able to fulfil some of those roles. So, they probably have done some M&A and fundraising and exits so as your business matures you may need these roles fulfilled and it doesn’t matter where they come from. What you need around the table will change as your business develops. You must constantly think about the roles you require and how the people around the table tick those boxes.

LG: Have an annual review process built in so you can have dialogue with the people with skills.

AB: I think you need s finance person and someone that will open doors commercially.

4.In terms of annual reviews, how do you set the criteria and how do you do it?

LG: Be frank at the outset about why you hired that person and have a minimum period of review.

LC: How do you check out these people before you give them a board seat? There should be a reasonable period of time before you give a seat because it comes with responsibility. We don’t hire for the executive positions without having a job specification so we should define what the seat on the board for a NED is got.

ST: in my experience, boards and independent directors play a different role in an early-stage company compared to a board on a quoted plc. You must be careful as a NED about not overstepping the mark. In an early-stage business, you’ve got 1 or 2 executives who are keen to get as much bandwidth from the other directors as they can; they want some value. So have a conversation with the NEDs about what that value looks like and remove them if they aren’t fulfilling that in 12 months’ time. A process should be in place to have a regular annual review.

5.Have remote board meetings opened opportunities to access different types of people to go on your board?

AB: I find it more producible to have meetings every other month as it takes a lot of preparation. We try and do it in person. If more than one person can’t attend in person, we do the whole thing remotely. I can’t say there is any difference in productivity between virtual and in person.

LG: The hybrid meetings are the worst. It should be all virtual or all in person.

AB: Try and restrict board meetings to 90 minutes. The slide deck should be the foundation for discussion, not just reviewing the slides.

6.As the company transitions through A, B and C rounds, how does the board composition change? When do you institute a remuneration committee etc, which adds complexity?

ST: It depends on the nature of the scaling you are looking at. if you develop an audit committee and have an independent NED chairing the committee, it gives greater assurance for the new investors coming in that this company’s finances are managed appropriately. This may not be the same for each company. This comes not long before an IPO. You are not forced into having a remuneration committee chair prior to an IPO. Delay this for as long as you can.