How to set up a board of directors
You may be growing a business or looking to bring new expertise into your boardroom. The question is – how do you set up a board of directors, one that is helpful and useful?
The key areas you should focus on as you set up a board of directors
The first area you should examine is your skills gap. What expertise, insights and experience are you missing in your organisation?
One of the essential roles of a board member is to act as a trusted, critical friend to the CEO and the executive management team. When recruiting a board member, you must trust them implicitly.
Board members, especially non-executive directors from outside the company, should also be brought in as advisors who can deliver real value to the company.
What do board members contribute that can help a business?
A company’s corporate governance is essential to its success. Besides improving overall performance, a strong board of directors promotes shareholder trust. The importance of good corporate governance practices cannot be overstated.
Therefore, when recruiting members for your board, you must look for people who:
- Know how boards work and are certified as directors
- Have the sectoral skills you need to grow as a business
- Are not afraid to challenge groupthink in the boardroom
- Can examine your strategy and suggest ways to improve and develop
- Have an understanding of the importance of a good company culture
How do you establish the rules of the boardroom?
Having a governance framework is essential. A framework can be the bedrock of how a company/organisation is governed and should be designed to ensure:
- An effective board,
- Transparency around roles and responsibilities,
- Accountability to and engagement with stakeholders, and
- Driving sustainable business practices.
Public companies have seven to nine board seats, while smaller companies have three to five.
A company’s board composition undergoes significant changes before it goes public, beginning with the appointment of independent directors.
The company will later create specific topical expertise committees (e.g. audit and compensation).
Board agenda and length of board meeting
CEOs are responsible for setting and owning the agenda for board meetings, which can last for three hours.
A board meeting should not be treated as a status update but as a forum for discussing challenging or strategic issues.
The best CEOs dedicate just 45 minutes to sharing highlights and KPIs and then use the rest of the time to dig into 1-2 strategic topics.
Here’s an example agenda from a board meeting:
- Highlights / lowlights (10 mins)
- Performance / KPIs (50 mins)
- Strategic topic 1: Three-year strategic plan (45 mins)
- Strategic topic 2: Key recruitment issues – current and future (45 mins)
- Closed session – 30 mins (e.g., any board matters such as approvals, sensitive topics, and feedback)
In this way, the company spends only a third of its time on the state of its business and most of its time on strategy.
Time management is essential to getting through the entire agenda. Timekeeping should be delegated to a rotating member of the group.
Elements of a board deck
A board deck should be used to facilitate discussion. Bryan Schrier from Sequoia has an excellent post on what goes into a board deck here (and above).
Board decks should be structured per the meeting agenda. In general, board decks are 30-50 pages long.
- Preparing a board deck
- How to build a board of directors that actually helps
- How to join a board of directors and get paid
You should take the online Diploma in Corporate Governance to learn more about corporate governance and how to establish effective boards.