Take Your Board Performance to the Next Level

A balanced board of directors is the difference between a CEO entering new territory completely unprepared and going in with a map in hand. Pascal Levensohn, Managing Partner at Levensohn Venture Partners, explains how to build a high-impact board, the vital roles you need to fill, and best practices for improving your board performance.

For the expansion-stage CEO, a well-rounded board of directors is a huge asset. Not only can the board offer valuable advice to guide founders and managers through the challenges that growing companies face, but it can also help attract top talent and bring impartial oversight to financial matters and potential conflicts.
Pascal Levensohn, founder of Levensohn Venture Partners and currently on the boards of Littlecast, ShotSpotter, and Akros Silicon, recently sat down with OpenView Venture Partner Firas Raouf to share his insights into what makes an effective board of directors and how a CEO can get full value and board performance from his or her council.

When to Develop a Board of Directors

Before you begin thinking about your ideal board members, you first need to decide on the best time to bring them onboard. Levensohn points to a singular moment as the signal that it’s time to develop a formal board of directors — the moment your company takes third-party capital. If you don’t form a board of directors the moment you take on outside investment, then “you’re making a huge mistake,” he warns.
Levensohn also suggests that you have “a formal governance structure” from day one of your company. Even if it’s staffed with your friends, this early corporate governance body should be populated “with people who you’re going to listen to,” and, regardless of what you call it, “you must have a formal oversight body that you’re going to take non day-to-day questions of strategy and process to.”
Having this structure in place before taking on outside capital gives you valuable advice during the early days of your company. Plus, it puts you in a position in which you’re better able to adapt to the new reality of directors and oversight that comes with investment.

The Value a Good Board of Directors Brings

Levensohn lists three main benefits that a balanced board of directors has to offer:

1. Experience and Guidance: First, and perhaps most important, “is the pattern recognition that your directors have” after years of experience as professional investors. Your board members know the waters well, and they can spot trouble ahead and help you steer the ship in the right direction.
2. Top Talent Recruitment: The next major benefit that Levensohn points to is the board members’ ability to attract new hires. “They should be a magnet for you to get new talent,” he says.
3. Fiduciary Responsibilities: Rounding out the list is the “corporate governance and oversight” piece – two “fiduciary duties that are extremely important.” The board will “protect the CEO from situations where there are conflicts of interest,” Levensohn says, as members are “objective third parties” who can weigh in from an investor’s perspective. For more on this aspect, see “Addressing Corporate Governance Issues Efficiently”.

Vital Board of Directors Roles

Levensohn compares a board’s makeup to a mosaic. “You like to have different colored tiles in that mosaic,” he says, and that range of colors is the collection of vital roles that constitutes a balanced  board of directors. Here are three roles Levensohn says are typically must-haves:

1. The Industry Vet: Ideally, at least one board member should be “someone who has domain expertise that is complementary to the CEO’s or directly related to the business focus of the company.”
2. The Financial Expert: A balanced board should also generally include “somebody who understands operational finance so that they can actually help as you build the company,” since you will inevitably face “a lot of challenges that you’re going to see for the first time.”
3. The Networker: The last vital board member that Levensohn recommends is “somebody who’s got a deep Rolodex and can help you with contacts.” Even a seasoned CEO may not necessarily have the “Rolodex reach” that an experienced director can bring to the table, he says. Knowing the right people not only helps with acquiring new talent, but also with getting your foot into the door of new accounts.

The Value of Independent Board Members

Adding independent board members brings unbiased voices to meetings. “There’s often a conflict of interest for the shareholder director,” Levensohn points out, “and there’s often a conflict of interest for the management team.” By having someone weigh in on decisions who “is not a major check-writer, but who has the gravitas to be listened to,” you receive clear-headed advice that’s free of any personal financial involvement.
An independent board member can offer particularly valuable advice when the board needs to approve another round of financing, Levensohn says, since he or she has no shares to be diluted. Make this independent director someone from the same industry or a former founder/CEO, and he or she can also act as a mentor to the CEO.
Levensohn also recommends that you avoid taking on an independent director with a background in big business. “They tend not to understand the realities of doing business as a startup,” he says — those who have entrepreneurial backgrounds work best.

Communicating with the Board

Levensohn makes it clear that building a strong relationship with the board through “free and easy communication” is vitally important. He recalls seeing situations where the management team refused to engage with the directors, which typically leads to questions about the viability of the relationship and an uncertain future.
At a minimum, Levensohn suggests that the CEO speak with each of the directors individually prior to every board meeting to give them a sense of what to expect, and also to ask them if there are any agenda items that they would like to have added. If the CEO can’t speak to each director, then he or she should ask the chairman or someone else on the board to follow up with those members who were missed.
Another method for maintaining smooth communication between the CEO and the board is for the directors to speak with one voice. “It’s the chairman’s role really to be the spokesperson for the rest of the directors and to build consensus,” Levensohn says. That way, you nip any fragmented discussions in the bud, and you never have a situation where the CEO takes a “divide and conquer approach” where she “tries to break people people apart.” Meetings will run smoothly, and everyone will be pushing in the same direction, bringing your board performance to a whole new level.

Additional Board of Directors Resources

Infographic: Do You Have a High-Impact Board of Directors?
OpenView recently surveyed an array of expansion-stage CEOs and board members to find out what it takes to create a value-adding board. The results are presented in this board of directors infographic, offering real insight into what makes high-performing boards tick.

eBook: Building a High-Impact Board of Directors: A Guide for Expansion-Stage CEOs
Written for CEOs of expansion-stage technology companies, this free eBook provides insights into how to build and manage a high-impact, value-adding board.