Sena Hill - Kyle Zasky
I remember clearly the day in 2005 when EdgeTrade, the company I co-founded, was evaluating its first institutional capital financing. In black and white, the term sheet stated: “Series A investor shall have right to appoint two Directors to the Board.” My initial knee-jerk reaction was not very accepting. What Board of Directors (BOD)? Who and why do we need outsiders dictating how we run our company? Ultimately, my partner and I held our noses and signed the deal. Fortunately, our BOD proved itself a valuable asset not only to our business, but also to us individually as entrepreneurs and executives.
Fast forward 11 years, and I am frequently on the other side of the table. At SenaHill, we typically invest at the Seed and Series A stage, so it is no surprise that we see young businesses with poor corporate governance, weak or ineffectual boards, or in some cases no BOD at all. Unlike many institutional investors, we typically don’t dictate a seat, though we are often asked to serve. The BOD, along with senior management, can make or break a company at this stage. Part of our investing diligence is to evaluate existing directors and to propose additions or changes when necessary, all driven by our aspirations to create a high performance group that will increase the probability of scaling a business.
The BOD is a group legally charged with the responsibility to govern a corporation. Its fiduciary and governance activities are well known, and describing them in detail is not the purpose of this commentary. All the requisite responsibilities and duties have to be handled…period. But the key to elevating a board from good to exceptional is contingent on attracting and selecting the right members, which is not an exact science. In fact, it’s often not a unilateral choice who gets to serve, and boards may be stuck with weak or disruptive individuals. Different classes of shareholders often have the right to appoint directors, which can result in clashing personalities, skills and energy.
A board’s chairman has additional responsibilities and ideally has the gravitas, communication skills and finesse that are critical to that role. The chairman is also the primary liaison between the board and management. A strong chairman can steward the team and mitigate non-constructive directors, such as the “Know it All Nancy,” the “Silent Bob,” the “Sidetrack Sally,” or my least favorite, the “Monday Morning Quarterback Mike.” There is nothing worse than someone who was at the table during critical decision time, coming around after something didn’t go well and whining about choices made when they had a voice and opportunity to dissent.
The best directors focus on strategy, bringing real world business pragmatism, not idealism, to the table. They think beyond quarterly or tactical short-term moves, and are optimistic problem solvers grounded by realistic expectations. They can handle healthy conflict and make difficult decisions that have consequences on many lives. Directors who take the time to understand the company they serve, and can apply their knowledge and experience to a new set of circumstances, bring that differentiating value.
There is an old expression that has truth for a board, “Noses in, fingers out,” meaning that a board needs to help set strategy, guide management and be aware of company on-goings (noses in)—but not overreach (fingers out). The board hires the CEO to implement and operate. Great BODs hire well and empower the executive to do his or her job.
As a CEO and entrepreneur, I often find myself in board sessions having to refrain from jumping across the table (like in the movie Ghost when the spirit jumps into Whoopi Goldberg’s body) and taking control. I resist that temptation, knowing that guiding, not dictating, is the most constructive and appropriate way to maximize everyone’s abilities. An overreaching board can disempower the CEO, damage trust and hinder progress. Having said that, directors cannot be timid, or fall into “group think” and become afraid to vocalize an opinion of dissent.
A high-performance BOD has a good mix of talent, skill and experience. Directors with strong governance, financial and legal backrounds are good complements to strategic thinkers. Many young companies aspire to land brand name or high-profile directors who can provide credibility. However, we urge companies to not just seek out “names for a pitch deck,” but to find directors who are committed to rolling their sleeves up, are present and can have an impact. I also strongly favor independent directors—those who are not part of management, founders or investor representatives—to mitigate any natural self-serving biases. Boards with diverse skills create a sum greater than its parts.
We are cognizant that directors are not employees and that directors have other time commitments. A board member is not management replacement or full time. I’ve witnessed unrealistic expectations of board members contribution and time. Conversely, directors need to understand that they have a responsibility that requires more than just showing up six times per year to cast a vote or jump on an occasional conference call. Be engaged, or don’t accept the role. It’s less about an absolute hourly or daily commitment, but a readiness to mobilize, on demand, to handle the inevitable crises that occur. I remember the call from a young CEO when his CTO and two key managers suddenly resigned. This was a pivotal and potentially devastating moment for this young company and its leadership, and 20 hours of unplanned board work ensued over the following 10 business days to manage the situation. It’s in these challenging times—which all companies face—when the BOD can come through or fall flat for an organization.
Still, there are no magic answers. A high performance BOD takes effort to construct, but is well worth it. Your future success can depend on it.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security, investment product or invest in a specific market. All information herein is for informational purposes only and should not be deemed a recommendation of any kind. No representations or warranties are made as to the accuracy or completeness of the information provided herein.