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Tuesday, March 13, 2007

“Do I Have an Effective Board of Directors? (How Can I Tell?)”

“Do I Have an Effective Board of Directors? (How Can I Tell?)”

This was an article I picked up, it discusses how to tell if a board is doing well, a question that I have asked myself a few times, from both sides of the table ...in my first start up company, there were debates amoung the senior managment on what we should expect from the board of directors, as it was our first time in a start up we had big expectations of what a board should bring to the table, off course we were dissapointed, but we were not being realistic about it....the board is there to give some corporate guidance and mentoring to the managment team, they should help set the strategy, and leave the tactics to the management team....

“Do I Have an Effective Board of Directors? (How Can I Tell??)”
By Noam Wasserman http://founderresearch.blogspot.com/

In April 2006, almost two dozen VCs, CEOs, and industry experts came together to form the Working Group on Director Accountability and Board Effectiveness (whew -- quite a name! I’ll take the liberty of using “WGDABE” instead :->), chaired by Pascal Levensohn. The impetus for the formation of WGDABE was a sense that VC-backed companies lack metrics for judging board effectiveness, and that having such metrics might help executives and boards assess where board performance could be improved. (That's probably also true of many non-VC-backed companies, though WGDABE seems to want to focus on the VC subset of companies.)This can be particularly critical for new ventures, where:
many directors (e.g., founders, new VCs, first-time CEOs, or industry executives who are serving on a board for the first time) are not experienced in the role of director – for instance, my post here provides some data on how board composition is particularly skewed towards many of these people during the early stages of venture growth;
dysfunctional board behavior often emerges at the worst times – e.g., when crisis hits or when critical exit decisions have to be made; or
there may be strong conflicts between the interests of the various parties involved (as I’ve examined in some of my case studies).
Note: In addition to the link above, my other board-related posts have covered the board's role as a mentor of venture executives rather than solely being a monitor of them, and have presented data on how the board's composition and functioning is affected by the stage of company development.
Last week, the WGDABE released a white paper entitled, “A Simple Guide to the Basic Responsibilities of VC-Backed Company Directors.” (Pascal's download form for the white paper is here.) Since my first look at a draft of the paper, the WGDABE has made some nice additions and clarifications, and the official white paper will hopefully be of use to many of the readers of this blog. (As I indicated above, the "VC-Backed" part of the title is a bit too limiting; most of the paper also applies to the broader set of non-VC companies.) In particular, the paper:
can help educate many founders, non-director senior managers, and other first-time directors about the board’s roles and responsibilities, regarding both business and legal issues;
highlights some practices that seem to separate effective vs. ineffective boards; and
provides a user-friendly checklist with which you can evaluate your own board and identify where it can improve.
I also like the fact that this paper is only part of an overall effort to improve board effectiveness. The members of the WGDABE are supposed to be pushing for their own companies to implement the checklist and other parts of the white paper, and the WGDABE is planning to do follow-up analyses of whether those companies gained any of the expected benefits from doing so. (They'll hopefully get a large enough sample and do a rigorous enough set of analyses that they'll be able to draw statistically- and practically-significant conclusions!) At the least, it's an interesting experiment in improving governance, and if it reaches its full potential, it could be quite a productive effort.



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