Next-generation board members should prepare for good governance
Let me start by telling you a story on sailing, where complementarity and collaboration are critical. As a sailing team, you need to trim the sails and alter your course in a rapidly changing environment influenced by wind, water, and other factors. The same can be stated for a venture or organization, every day you need to “trim”, optimize and improve your venture, organization. The Board of Directors and management should collaborate when deciding on altering the course, referring to strategy and new innovations. The right crew is essential when facing storms and heavy winds, similar to the teams of ventures. Which for example are facing the consequences of the corona crisis.
What is good governance? — Good governance is about finding the right balance between the management, the Board of Directors, and the General Meeting of Shareholders. Or as summarized by prof. dr. Lutgart Van den Berghe:
‘The art of good governance is the art of aligning interests.
For me, aligning all stakeholders and keeping the interest of the organization at heart, are key. Creating long-term value, accountability and transparency are what matters in an organization to achieve this.
The board should oversee the general health of the venture. Now, I am referring to ventures but this also stands for SME’s and listed companies. When the CEO is absent, the board needs to ensure good replacement. When management deals with internal problems, ensure these will be resolved. Of course, the board should operate within a framework of principles and mechanisms of the venture. Nose in, fingers out for non-executive directors. This means they should have permission to look into everything but are not involved in daily operations and decisions. And besides reflection on the financial aspect, it is equally important for the board to reflect on strategy, sustainability, innovation, and HR.
Funding and financing — What happens most of the time is that founders first focus on raising funding, once the investors arrive, and only then the entrepreneurs have a first experience with the Board of Directors. It is often too late when they realize the actual implications.
My advice: first the Board of Directors should be established, then and only then should you look for funding. Secondly, know which type of directors you want to join your board. One or two independent directors are advised. By implementing these guidelines, you prove that you are aware of what good governance means. Investors will appreciate this. When things happen in a different order, I often notice that it goes southwards for the venture. Proactively compose your Board of Directors, this is my message to all young venturists. A VC firm will propose someone to sit on your board but you still need to get along. This person will either enable you to think big or will shatter your dreams if you are not aligned.
Conflicts — The chance of conflicts emerging grows when the venture starts to upscale. Here communication is key; supervise, advise, provide input, engage in debate, find consensus and try to understand one another. The board should enable all of this without too much interference, they should take on the role of the coach.
Aligning your board — Committees can definitely help. In my opinion, a committee for the sensitive subject of remuneration is the way to go. Many ventures do not think this through when they start.
Another recommendation is to pass all information to the board members at least two days before the meeting. The meeting in itself should have a duration between two and four hours. In the start-up phase, I would advise planning a board meeting every month, when the company starts to mature the frequency can decrease to one meeting each quarter of the year.
Meeting minutes are very important. Especially these days, for remote meetings, make sure this happens in a professional manner and with the right tools. Once you start to upscale your venture, a lot of conflicts will arise. Many of those could be solved with good communication.
Endnote: the future of governance?
The manner in which we nowadays manage our organizations does not differ much from 15–30 years ago. Fortunately, a lot of aspects of governance have changed, for example, the recent increase in attention for sustainability. Still, the way Google governs is exactly the same as how an oil company with a lifespan of 100 years does it, although those organizations are nothing alike. Innovation on a business level, on sustainability, technology happens, why not on governance? Why has this remained so static? While we see a lot of new forms of organizations pop up, like Wikipedia, independent and autonomous teams, the rise of high-tech ventures with exponential growth …
To summarize, governance remains quite traditional these days. I wrote this vision down in another story on Medium where I outline the pros and cons.
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