The Board of Directors is the legal protectorate for the interests of all of the company's employees, customers, suppliers, creditors and shareholders. From a business standpoint, the board provides guidance and direction, measures performance, evaluates management and approves/disapproves of management’s plans.

Sarbanes-Oxley has increased expectations for directors of both public and private companies. More venture capitalists are hiring a non-executive chairman or a lead director for their portfolio companies. A heightened emphasis is being placed on independence, character and active involvement. As a result, the Board of Directors should not be comprised of the entire management team, blood or marital relatives, service providers such as company counsel, or luminaries. Doing a thoughtful job of building a capable board is a key indicator of the thoughtfulness which the CEO and the company bring to the company building process.

Small boards are typically more effective than large ones. Start-ups suffer many disadvantages to larger competitors. Their principal advantage is agility. A cumbersome board can severely impair agility. A small working board can turbo charge it. As the size of the company grows, often does the size of the board.

In our experience, the ideal board composition includes the CEO, two experienced outside directors with in depth knowledge of the industry, and two professional investor representatives. Outside board members should be compensated and they should all be compensated equally. If you aren't enthusiastic about compensating someone well to join your board, then they probably aren't the right director for you.

Communication with the board is critical. As a result of the influence of Sarbanes-Oxley, the focus of communication is on business affairs, industry developments and a complete understanding of financial information. In stark contrast to historical behavior, contact with senior management beyond the CEO and without the CEO as chaperone is now a best practice.

Board members should receive a mailing well in advance of each meeting in order to give each board member an opportunity to thoroughly review the materials. This package should include a proposed agenda, minutes from the previous meeting, key financial performance measures, and resolutions to be voted. In addition, the package should contain one or two page write-ups by each operating manager and the CEO describing key accomplishments since the last meeting, and important challenges and goals facing the company.

Meetings should last two to three hours, begin and end on time, and be run efficiently while still allowing for drill down discussions on important topics. Management members should be invited to present and when appropriate attend segments of the meeting.

Some boards meet monthly, some every other month, some quarterly. As a rule, the boards of younger companies meet more frequently since they require more board help. Typically at least half the board's contribution to the company's success comes from activities outside the board meetings: phone conversations and breakfasts with the CEO and senior management, interviews with candidates for key management positions, calls to prospective customers, etc.

Like so many other things, a CEO gets out of a board only what he or she puts in. A board kept in the dark or on the periphery can only be a drain on the CEO's schedule. An informed, involved board can be a huge asset to the success of both the company and the CEO's career.

Copyright © 2005 by Mark Kaiser Enterprises, LLC

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