| Often, chief executives and HR
professionals have questions on how to recruit and motivate new board members. They are
unsure of the appropriate: intervals for board meetings, compensation, and diversity of
the board's members. And, there is little research to help companies develop best
practices for attracting, retaining, rewarding and drawing value from their
entrepreneurial boards.
As a way to cogently and concisely answer these questions,
the Vell Entrepreneurial Boards Composition Survey identifies trends in boards of
directors. We surveyed 150 CEOs, venture capitalists and vice presidents of human
resources and board directors from various industries.
We drilled down into our data to expose differentials based
on size, ownership structure, length of time in business and revenues. By comparing
findings to other surveys, and by comparing private and public companies where possible,
we were able to highlight board practices at entrepreneurial firms, especially small
technology companies. We also discovered a diversity of remuneration structures worth
noting.
The following offers key findings from the Vell
Entrepreneurial Boards Composition Survey, and recommendations for building your
entrepreneurial board.
Tips to Help You Build a First Class Entrepreneurial Board
1. Watch Your Entrepreneurial Board Composition
The median proportion of independent directors is 20% at
private companies. That number skyrockets to nearly 70% at public companies. Your company
strategy needs to determine your board composition. Ensure that the skill sets on your
board match your company's strategy. They should also complement the skill sets on your
management team a well. Maintain a diversity of skill sets and industry experience on your
board to offers you a well-rounded perspective on the opportunities and challenges your
company faces.
Aim high. Define your ideal board candidate. Go after
world-class talent. You will be very pleasantly surprised with the caliber you can
attract, if your business model is solid.
2. Understand that Board Member Experience Matters
The median director in the survey's sample of small
technology firms reported a 3-year tenure, as compared to six years in an S&P 500
company. The median director has at least $100 million in liquidation experience. When
recruiting board members, you want to pay close attention to the candidate's overall
industry experience and credentials. Try to recruit executives that can provide guidance
as your company grows and can add value beyond the three-year time frame. As long as there
is alignment between your board skills and company strategy, why not aim for the 6-year
tenure?
3. Seek to Grow Your Entrepreneurial Board Size to About 6
to 8 Members
In our survey, the average board represented six members.
The median number of directors within our survey ranges from five to seven, depending on
the size of the organization. Our sample ranged from one board member to 28. When growing
your entrepreneurial board, remember too many members can breed confusion. Too few can
leave important perspectives buried.
4. Fill Empty Entrepreneurial Board Vacancies Quickly
Roughly 1 in 3 private companies have at least one empty
seat on the board. This represents twice as many vacancies as in public companies. Empty
board seats devalue overall production of the board. This will rob your company of the
opportunity to draw from the wealth of experience that seat could offer.
5. Get Your Board Involved
The median number of meetings among respondent firms was
six to seven teleconference meetings per year with four face-to-face meetings. However,
Directors boards, especially in fast-paced industries, such as software and
telecommunications, should hold board meetings more frequently. The speed of execution,
the smaller management team and the strategic importance of each decision dictate a more
hands on approach at the board level.
6. Compensate Board Members with Equity Upside
Private companies are much more likely than public
companies to either not pay their directors, or rely exclusively on equity awards, such as
annual awards or awards upon appointment. Only 27% of our survey respondents pay a board
meeting fee.
In 44% of private companies, board members receive equity
awards only upon joining the board. Only 4% of public companies employ the same policy.
There are also equity retainers in some companies.
If you want to attract and retain the interest of top-level
executives for your entrepreneurial board, then make equity compensation a priority. Only
50% of our survey respondents offer stock options/RSUs or some other type of equity
compensation.
7. Determine Your Annual Cash Retainers
There is a strong association between a company's revenues
and the dollar figure of the annual cash retainers they pay to board directors. Keep in
mind that experienced board directors will often agree to serve for stock options rather
than large cash-based compensation packages.
Follow this information and you will recruit and retain a
strong, first class entrepreneurial board to grow your organization. |
