38 – How to manage, get the most of your Board and how to be a great board member – 1 of 2

In this episode, we will explain what a Board of Directors is and is *not*, its roles & responsibilities, and how it should evolve over time. Navigation: Intro (01:34) Section 1: What is a Board of Directors (02:10) Section 2: Taxonomy (06:20) Section 3: Evolution of Board structure over time (12:08) Section 4: Board Composition (18:38) Conclusion (29:47) Our co-hosts: Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast Intro (01:34) Bertrand Welcome to Tech DECIPHERED, episode 38. This is the first of two episodes where we will discuss about how to manage your board from a CEO perspective, mostly. The idea here is to talk about why do you want a board, what's the purpose of a board, what would be the taxonomy about running a board, the evolution of a board, its composition, how you should manage your board, as well as other board, like an advisory board, as well as sharing some perspective from a board member perspective or from an advisor perspective. Section 1: What is a Board of Directors (2:10) Nuno Indeed. Maybe we start at the beginning. What is a board of directors? I think that might be a question that gets thrown quite a bit. I'll read from a definition. Some of the stuff we'll be doing today is based on a document I prepared a very long time ago and some other things that Bertrand dug out. But just to directly quote, a board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. What is a board? A board represents, basically, normally actually shareholders. Shareholders and other stakeholders in a company. It depends on the country. We know, for example, in Germany, that boards of directors also have in many cases representation by unions. But in the case of what we will discuss today for the most, we're going to talk about startups and tech companies. Normally, boards represent shareholders, and they represent the interests of shareholders. So the people that are on a board of directors are there to make decisions around a couple of areas that are vital to the well-being and growing of the company in representation of a larger group of shareholders. Nuno The typical duties of boards of directors obviously include the governance of the company, so all the key policies and objectives of the company. The selection, appointment, supporting, and reviewing of the performance of a chief executive. We'll come back to that as well. It's normally a contentious issue, but it is the responsibility of the board to do that. Making sure that the company has their adequate financial resources to sustain itself, to be a growing concern, proving annual budgets, strategic items, any accounting that is done to other stakeholders of the company, including shareholders. And last but not the least, and there's many other things a board can do, but last but not the least, setting the salaries and compensations for company management. This should be interpreted under the logic of the senior people of the company, certainly the CEO, maybe founders, and other core people to the company. In a nutshell, what the board is responsible for is governance on the one hand, and on the other hand, what I would call mostly strategic decisions. Strategic decisions that link to the financial well-being of the company and that link to its organizational stand, that link to its strategic elements. Nuno What does a board not do? A board is not the executive committee of the company. It's not responsible for day-to-day decisions or management of the company. We'll talk about it later. And when we talk about composition, there might be members of the board of directors that are executives, but the board is not responsible for day-to-day. It's not responsible for managing Johnny or Mary, or making sure that they're doing a good job on their day-to-day basis, etc, etc. It might be that Johnny or Mary are strategic in some discussions that get brought to the board, but it's definitely not the board's responsibility to manage them on a day-to-day basis. It's definitely not the board's responsibility to manage the operations of the company on a day-to-day basis Bertrand Maybe one point to never forget as a board member is your fiduciary duty. You are not here to just represent yourself, your fund, your interest. You are actually here to make sure that the organization is overall well managed, that it stays in some financial situation. And to do that, you need to be objective, unselfish, responsible, honest, trustworthy, efficient, hopefully. And at the end of the day, you need to act for the good of the organization, the company, the business, rather than for the benefit of yourself or some of the shoulders you represent. Your work as a board member is for the good of the organization. Nuno This is a pretty vital point that you highlight here, often forgotten by both sides of the table, by the executives in the company, people that work on the day-to-day, the CEO, the chief operations officers if they're board members, and in many cases, also forgotten by investors. Obviously, we are there to return the most money to our own investors, to limited partners if we're a venture capital firm. But at the end of the day, we also have to represent the best interests of the company. If we do something that's egregiously against the best interests of the company, although it might be in the good interests of us as shareholders, we might run into trouble. So again, it's something to remember at the end of the day. I've been on many boards of directors, and sometimes people forget. Sometimes they forget very aggressively, sometimes they forget for a short period of time and someone needs to remind them that's what they're there to do. Maybe this is a good way to migrate the discussion into precisely what is the taxonomy for the people attending a board meeting. And obviously, we have executives, non-executives, independents, all this stuff. Nuno Bertrand, do you want to give us the lay of the land? Section 2 - Taxonomy (06:20) Bertrand Yeah, sure. It's quite typical to have some founders as well as some executives as part of the board. Obviously, some founders might be executive in the business, might be employees in the business, or actually might have left the business but still sit on the board. So these executives, when they are on the board, they should act as board members. They should wear board member hat. And executives, of course, can be a CEO, COO, CFO, chief product officer, chief revenue officers. So you might have different execs that are board members. And o- course, what might happen in a board meeting is that you will bring as needed, but that's different from being an executive board member. If we go on the other side, non-executive board members, you have, of course, typically the investors. So if you raise money, you might have a seed investor, you might have a Series A, a Series B. Typically, you might have multiple investors in a round of financing. And there, typically, you might have only the lead or potentially the co-lead having a board seat. And what happens is to step by step end up with also some independent board members, one, maybe two that are more neutral and they do not represent investors as they do not represent executives. Bertrand They are just independent. Bertrand Obviously, some board members were introduced by the CEO, might be introduced by some VCs. So they might have some connections with one side of the table more than another. But at the end of the day, they are supposed to act independently. And you can also talk about inside investors, meaning execs and investors, and outside directors, meaning as independent. Inside versus outside directors is another way to talk about it. Sometimes some people might be surprised to see some co-founders who are no longer executives, no longer in the business, still on the board. They stay there because they have knowledge, they have expertise in the business, and sometimes they might have significant shares and control of the business but might not want to still be operational. Nuno Likely, if they're still there, they are investors. They still have stock in the company of some sort. Normally common stock, but it is a significant amount of shares, right? So there'd be non-executive investors that just obviously happen to be co-founders of the company at the end of the day. Bertrand Yeah, and if we go about non-board members, you have different type of people who might still be joining the board. So you can have a company secretary, a company lawyer to make sure the minutes are taken properly and we'll talk about it, to make sure the legal matters are respected. Typically, that can be an insider, a person working at the company, or it could be your external counsel, quite a lot of counsel. By the way, in Silicon Valley, specifically, provide that for free, so they don't charge you for their time working at the board. That's a good tip to know. Nuno I wonder why. Bertrand Yes. Definitely, they have an interest to know what's happening and to propose additional services if they were needed. But there is good value to have a lawyer assisting at the board, end to end,...