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Many interests are represented within a board of directors: the CEO, founder(s) or other senior executives, venture capitalists or other big investors, and shareholders with large holdings. Ideally, each director should look out for the company above all other interests, but this may not always happen. Enter the independent director.
An independent director represents neither institutional investors nor the founders and can bring balance to a board. Below are five reasons why every board needs an independent director.
1. Independents are impartial
An independent director is not as closely tied to the company as executive and investor board members; this can allow the independent director to be more impartial and objective. Donna Petkanics, Partner at theBoardlist’s U.S. Founding Partner and Global Sponsor Wilson Sonsini Goodrich & Rosati, stated at our recent board event, independent directors are “still beholden to shareholders, but will try to be more objective as far as moving the company in a beneficial direction.” An independent board member’s job is to look out for the well-being of the company and the shareholders’ interests first.
2. Independents want to be there
If you’re a startup and have only investors on your board of directors, you run the risk of having board members whose attention is split between many boards of companies they’ve invested in. Many variables can impact their level of engagement, e.g.,how much money they or their firm has invested, how important the company is to their portfolio. An independent board member can bring focus and depth of perspective about your industry, company.
3. Independents bring expertise to bolster where you have room to grow
With an independent, you get the chance to select an expert in a specific area where your company wants to grow (e.g., going public or scaling/growth), or an area that has become more urgent due to market changes, new opportunity or an adverse situation. This can be especially important when you’ve got a small board and are early in a company’s life cycle. By bringing in a specific expertise early through your independent, you can take advantage of growth opportunities and potentially avoid costly mistakes.
Will Herman, serial entrepreneur, explains in Brad Feld’s book Startup Boards, “Creating and running a startup can be stressful and time consuming . . . Since the outside director should have loads of operational experience and will often have specific industry knowledge, chances are he/she has experienced almost everything the CEO will go through. Who better to listen, advise and counsel?”
4. Independents are the key to conflict resolution
An independent board member is able to play a pivotal role in neutralizing any conflicts that arise among the board. theBoardlist founder Sukhinder Singh Cassidy believes that “an independent director can often be a bridge builder in difficult conversations.”
Will Herman adds, “sometimes there are just some deep, fundamental disagreements between the management team and the company’s investors . . . Even if the outside director strongly supports one of the perspectives, since they are close to both sides, they are in a unique position to cut through to the core issues and find agreement much faster.”
5. Independents can mentor and share their network
While all board members can help to mentor the CEO and executive team of the company, an independent can be specifically recruited for skills or perspective needed by executive team. Through casual or more formal conversations, an independent director can be the key to a more sane management team.
Gerry Brown, author of The Independent Director: The Non Executive Director’s Guide to Effective Board Presence, adds that, in times of stress, an independent director should also be someone with networking ability and other resources. “It may be necessary to bring in specialist advisers — strategy consultants, lawyers, accountancy firms, investment bankers, tax specialists, remuneration consultants, head hunters — to help. The independent board member needs to have a network of contacts to assist or enhance these needs.”
Find your independent board member today
A successful independent director brings focus, clear perspective and the ability to lead objective board discussions, and, if necessary, drive better decision- making and results. A trusted independent director can make the difference in a board — and by extension — a company. If your board doesn’t have an independent director, you’re missing an opportunity to leverage someone with experience, knowledge, contacts — someone who’s been there, done that — to your company’s advantage.