Board relations in a startup

A corporation is legally required to have a board of directors. If it is a small growing company the owners can appoint each other as directors or to invite outsiders. Let’s review the factors to consider when structuring the board of directors in a startup.

 

Entrepreneurs may be reluctant to bring outsiders to their company and disclose their financial and confidential information. They prefer to fill the positions with either their partners or reliable relatives and friends. Having independent directors, however, brings certain benefits. The directors should be chosen based on their experience, knowledge of business, skills which owners and employees of the company may be missing, and potential to contribute to the business growth. Experienced directors can provide objective criticism, market insights, assist with strategy development, long-term planning, and sometimes can even make valuable introductions. Many venture capitalists consider it a plus when an experienced businessperson is on the board.

 

The board of directors is legally required to meet not less than once a year. On practice, a board of an actively developing startup can conduct formal meetings as often as the business of the company requires. Some boards meet quarterly to discuss major matters; others meet monthly and get more involved with the business operations. In any case the CEO of the company should be touch with the board members on regular basis between the meetings.

 

The service of directors can be compensated or not. Most of directors agree to serve on the boards of startups without compensation because they enjoy sharing their experience, advising entrepreneurs, participating in the industry, and even to gain additional connections and prestige associated with sitting on a board of several ventures. It is a normal practice for the company to pay for the traveling and other expenses of the directors, which are incurred to attend the meetings. Besides attending the meetings, directors spend lots of time studying the company’s materials, doing market research and comparison, participating in informal discussions with the CEO and colleagues.  Once the business of the company growth, the company may offer compensation for the directors’ time and effort, as it would compensate any other employee of the company. Equity compensation is not uncommon as well.

 

In order to ensure the effectiveness of the board, the directors should be timely provided with all information, which is important for business development. Also the CEO must view directors as advisers who can provide necessary support and guidance when needed rather than a controlling mechanism, which oversees and evaluates his work. It is critical that the CEO and the board have the same priorities and goals. These priorities should be regularly examined and refined if necessary to ensure that all parties work as a team towards the same goal.

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