Five Tips for Managing Your Board of Directors
Creating and maintaining strong working relationships with your directors and building a track record of trust and open dialogue is essential for the success of your company. Here are five tips for managing your private company :
Communicate clearly and often. Maintaining an open dialogue with your directors is critical to success. Yes, that means having regular meetings of the board, but it also means being proactive by sending prompt updates about material events. It also means reaching out to your directors if you have questions or need advice. Frequent communication about important decisions gives your directors insights into how you are running your business and builds long-term trust.
Report regularly. Every director has a fiduciary duty to the company's stockholders. An important part of fulfilling that duty is staying informed about the company's progress and results. You should establish a regular schedule for board meetings, typically no less than every other month. At least a few days before each meeting you should distribute pre-reading materials to the board. These materials should include a summary of operational matters and financial results. Let your board weigh in on the specific content and form that is most helpful for them.
Don't hide bad news. No one likes bad news. What's worse, though, is not giving your board clear and understandable disclosure about a problem. Your board will expect to hear bad news at each meeting—in other words, they won't expect everything to go smoothly all the time. Even if your business is doing extremely well, it's the bad news that likely requires the most attention. Your board is there to help you through the tough times, which all companies have. Present the bad news in the full context of which it occurred and come prepared with solutions. Make sure you have done your homework; sometimes the bad news is just a manifestation of a deeper problem.
Pick people wisely. Directors can have strong opinions about how a business should be run. Like any group you deal with, some personalities work better together than others. One of the best ways to ensure you will be able to properly manage your board is to make sure you pick the right directors to begin with. Ideally, your directors should bring something to the table that supplements weaknesses or inexperience of management. can be excellent sources of industry experience and contacts. Venture capital investors will often have the right to elect one of your directors—so make sure you pick the right partners.
Compensate with care. Should you pay your directors? Most venture-capital-appointed directors will not accept compensation to serve as a director. However, many industry veterans and experts will. Offering the proper amount of compensation is necessary to attract sought-after talent and ensure engagement. Generally, private companies give equity awards (usually below 1%) that vest over time (usually 2-4 years).