Note: This article is part of an ongoing series on Board Directors. To learn more about their roles and responsibilities, download this free eBook today Director's Guidebook: How to be an Effective Board Director in Early Stage Companies or purchase our books at Amazon.com.
So, do you think you have what it takes to be a great board member? Take a moment…don’t give a quick answer. Think about it long and hard, because a board member can have a major positive or negative impact on a company’s future success. You shouldn’t jump into a director position without knowing if you have the personality and people skills to succeed in this very important role. In fact, the process of deciding illustrates one of the key skills needed in a director - self-awareness.
To assess whether an experienced CEO will want you to join her board, you will want to read this article and take an inventory of how you stack up. We are going to ask you to compare yourself to the key characteristics of the best board members we know. The questions here are focused on three aspects of fundamental human behavior and experience:
An ability to provide guidance and support without the ego-driven need to control or dictate everything
Prior business experience that helps a company make decisions that lead to success
A willingness to commit a significant amount of your valuable time and energy to the company
If you can truthfully respond in the affirmative to the questions that Ham discusses in this chapter, then, just maybe, you have what it takes. So let’s get on with the questions.
Q: Ham, the title of this article is a bit intriguing. What do you mean by “noses in, fingers out”?
I like this expression because it’s very descriptive and pretty easy to understand. As a director, it’s your responsibility to nose in and pay attention to what’s happening with the business. At a high level this means you are aware of the company’s key risks, and you understand what management is doing to mitigate these risks. To get this type of insight, you have to have your “nose in”.
But you are a director, not management. “Fingers out” is just another way of saying, “Be a director - you can advise, but let management run the company.” If you are constantly micromanaging the business, you remove any power or responsibility the management team has to make decisions and move the company forward. Management needs to take ownership of forecasts and projections, but they are people just like you; if you are going to agree to own an outcome, you need to control the means of achieving it. Boards who try to hold management accountable while simultaneously meddling and interfering are not going to get what they expect. You either end up with weak management, a diffusion of responsibility, or both. And based on past experience, I can tell you that rarely works out in the best interest of the company.
Although I consider “noses in, fingers out” as a rule that I rarely violate, there are a few situations where I believe a director needs to get more involved. It is not unusual for an early stage company to have an incomplete management team. If a board member has valuable expertise in an area where the management team doesn’t, it can be very helpful for the board member to help out in a way that might be construed by an outsider as micromanaging. As long as the CEO and the board member go in with an understanding that this is a short term situation, focused on learning and knowledge transfer, in my mind you haven’t really violated the rule.
Q: Let’s stay with this theme of allowing management to do their job. What types of personality characteristics help a board member color inside the lines?
For me, one of the first characteristics I look for in a board member is humility. That might seem to be a strange descriptor to highlight as a strength in a board member, so let me explain my thinking.
First of all, I am using the word humility with the following definition in mind: modest opinion or estimate of one’s own importance or rank. Just because you are on the board doesn’t mean you have the right to be arrogant and throw your weight around. You might think you know more than the CEO and her team, but remember, they are living this business 24x7. They are speaking to customers and prospects on a daily basis, and are gathering insights about the business that you don’t have. Christopher humorously analogizes this process to first time parents with a new infant. On day one, the pediatrician is undoubtedly the expert – the parents have no idea how to operate their new infant. But after living with their baby for a while and getting to know its quirks, the parents gradually begin to have increasingly strong instincts about what is going on – is it gas bubbles, or is something really wrong? Same thing happens to an entrepreneur with his/her company. The board may be older and more experienced, but they need the humility to recognize the rapidly-growing expertise building in the management team. Humility allows you to understand that management eventually knows more than you about certain aspects of the company.
With humility, a board member also understands the value in not only asking questions, but also truly listening to the answers. Dominating the boardroom conversation is a sign of weakness in a director (or a CEO for that matter.) You cannot learn if you are talking. In a great board meeting, a director who tries to tell management what to do rarely succeeds. A board member asking questions to ensure management is intellectually honest makes a positive contribution.
So, the first question on our test to see whether you are qualified to be a board member is the following: Are you willing to take on more of an advisory role, or are you a control freak who has to micromanage?
Q: I lost count of the number of times I hear a variation on the following saying: “Failure is a great teacher.” What value do you place in a board member who has lots of stories to tell about past failures in business?
The short answer is not much. For two reasons: first, the pace of technological and societal change is great, so durable analogies are rare. Second, the lessons you learn from failures might help you avoid making some stupid mistakes with a company, but knowing what to avoid is different from knowing what to do - war stories of past mistakes don’t translate well into showing you the path to success. With a caveat that what worked for a business 5 years ago might not work today, I prefer to work with board members who learned from success. In other words, it is less about what happened, than why it happened.
We all know there is a fair amount of luck in building a large successful business. That said, businesses don’t succeed unless they do a lot of things right. Techniques for managing people, intuiting customer needs, and controlling finances, for example, are all skills that great board members have learned over time and with repeated practice. Someone who achieved operational success in their career and can impart the lessons learned and techniques mastered is most valuable on a board.
Now for the second question on our test. Have you built up the pattern-recognition skills on what’s worked before (success) and what hasn’t (failure), and can you impart some of those lessons to the management team?
Q: Talk a bit more about board seats. What kind of commitment is a board seat for the early stage investor?
As a board director, you are making a significant human capital commitment to the company. Although you aren’t an employee of the company, you are expected to commit your time, availability and expertise to the company. My general expectation for a board seat is that I am committing around 100 hours per year to the company. I break that down as follows:
With startups, 6 to 12 Board meetings/year with 1 hour of prep and 3 hours of meeting time (24 to 72 hours)
Weekly or bi-weekly phone call with the CEO at 30 minutes per call (13 to 26 hours)
10+ activities for other meetings, candidate interviews, fundraising calls, etc. at 1 hour per event (10+ hours)
I take it a step further in my board service. Between board meetings, I like to stay informed and be on the spot for questions as they arise, and so I will arrange for a weekly 30 minute phone call with the CEO. It’s scheduled for the same time every week, and gives the CEO an opportunity to ask for my help on tough issues in real time instead of waiting for the next board meeting.
And finally, unscheduled events happen with startups. Such events include a job interview for a senior member of management, a compensation committee meeting, or a discussion with a new potential investor.
Q: So that covers the human capital commitment. But what about the financial capital commitment?
Since you are an angel investor in the company, you have already invested some of your money. As time goes by, the company will need to raise additional funds. In many cases, board members are among the first to commit to new rounds of financing. This is worth keeping in mind as you both assess whether you want to get involved in a board and also as you stage capital for your investment in the company.
That said, directors’ help with money raising is not limited to just writing checks. In fact, a more impactful role is often that of a fund-raiser. Directors are very close to the company and tend to be respected figures in the company’s investor community, so there is a big role for directors in helping to get the word out about the company’s potential, and be available for questions and diligence from prospective new and returning investors.
Now, we are on the final question in our board qualification test. Are you willing to commit enough time, energy and potentially money to do a great job as a director?
Want to learn more about the roles and responsibilities of Directors? Download this free eBook today Director's Guidebook: How to be an Effective Board Director in Early Stage Companies or purchase our books at Amazon.com.