When we think about public companies, it is of course a given that they will require a board of directors. When we think about investor-backed companies—whether via private equity or venture capital—the board is frequently made up of mostly investors, and occasionally augmented by an independent director to bring in some industry experience.
However, if you’ve built your own private company and don’t have a requirement from outside investment or a contractual commitment to have a board, what does having one actually do for your company?
As someone who serves on several boards myself, I’ve found myself wondering: Why have a board in the first place? Is it actually necessary in this day and age?
If we take a look at the pros and cons that the CEO and other constituencies such as employees, investors, and community might get from having a board, it looks something like this:
Historically, the role of the board has primarily been forensic. In a typical board, members would show up once a quarter to look at the financials and review the board package. Post the governance failures of WorldCom and Enron and the implementation of the Sarbanes-Oxley (SOX) Act, there was a palpable shift in the boardroom that led to a much deeper focus on internal controls.
With today’s velocity of change, the biggest focus is how to future-proof businesses. For the board to be a valuable asset for shareholders, the new model needs to be led by people who deeply understand a company’s current business model. They need to bring not only an IQ and sensitivity EQ, but to be more critically future-oriented. They need to bring an entrepreneurial and innovative mindset to the company they serve.
Board members should be people who are fully engaged in their careers, whether they have a full-time operational role or have created a full-time active portfolio of business activity, so they are deeply attuned to new and emerging trends, rather than outside observers.
I’ve found this to be true in the gig economy, sharing economy, marketplace model, in global distribution issues, artificial intelligence, or machine language, insights on robotics, digital transformation, etc.
The old board model of merely having industry background and functional expertise—in other words, financial, marketing, manufacturing skills—is simply no longer enough.
So, if you are a sole proprietor and your personal leadership style doesn’t rely on external stimulation and challenges, then perhaps a board really is not for you. It might be the case that it will merely be a distraction.
I stop short of declaring boards entirely useless or obsolete, however. If you know you stand to gain significant value from mentoring from board members and having a thought partner to spar with, then a board may very well be valuable—you just have to ensure that you are selecting the right members.
Of course, there is no clear formula for how to find the right board member, no matter what phase a company is experiencing. Among the many selection criteria, matching a prospective director’s experience with the current and upcoming stages of growth is a helpful approach. But the most important thing is hard to quantify or regulate: chemistry. It almost never works out if you add someone to a board who you don’t really and truly click with, or who doesn’t get your vision.
Companies need to refresh the way they build their executive leadership teams, regardless. If you do decide you need one, the board of directors needs to have a trusted and critical eye to be sure the team is bringing the knowledge and tools that will help your company in the next five-year journey, and beyond.
Considering the fact that 50% of companies disappear in 10 years, perhaps it’s time we revise the board as a short-term gig, for those companies who benefit from having them. Maybe board members should be hired with the same life expectancy of leadership teams, which are generally viewed with three-to-five year foresight.
If you construct a board with the expectation that the term is much more limited than the normal American open-ended tenure, then I believe you will be doing your company—and shareholder—a true service by building in the mobility and flexibility we need for the future, whatever it holds.