BACK TO Thought LeadershipBoard Series: #2 – Building An Ideal Board
Nancy Phillips is the Co-Founder and a Managing Partner at Rallyday Partners. Previously, Nancy has been Founder or Executive Leader at TSC, ConferTech International, ITC, RMI.net, Intrepid Communications, and ViaWest. In this guide, Nancy walks through how to source strong board members and build a board that can add value for the management team.
Intro From Nancy
I have been involved with boards of directors for a very long time both as a board member and as a CEO. When I was a first-time CEO working with first-time board members, I wished that I had more advice on how to maximize the value of that. As with all CEOs, I've had my share of good and bad experiences-with highly functional and productive sessions, and ones that left value on the table. I've learned a lot through my experience on how to develop high-functioning relationships with the board.
Rallyday's mandate is to make the CEO/Founder journey better. We look at board meetings like any business-building function: "How do we create a great experience and highly impactful board meeting?" Board meeting engagement for all participants is one of our obsessions.
The board meeting should be a gift for the CEO. They're set of smart partners that care about your business, operations, and all of the stakeholders in your business. But if the CEO doesn't approach the board of directors with the right intent and approach, they miss an extraordinary opportunity. If the CEO doesn't have the right mindset toward the board, it can become a drag rather than an accelerant to your growth.
As a founder, it is understandably a bit scary and nerve-wracking to engage with the board and it isn't obvious what they're there for and how to maximize the value of it. The board is in effect the CEO's boss. As with any boss, the CEO might wonder whether they're allowing the right level of transparency, what they should say, and what they shouldn't say.
Clarity, in the board as in all business relationships, is the key to building incredible trust.
The goal of these guides is to help CEOs access value from the board, and take out the fear, uncertainty and doubt from board reporting so that CEOs are invigorated by, rather than dreading quarterly board meetings.
For more in this series, see our other guide on:
What are the different profile archetypes of board directors? How do each of them offer value indifferent ways?
There are two archetypes of board directors:
- Financial sponsors - typically, major investors will have board seats in order to actively participate in strategic decision-making, protect their financial interests, and ensure alignment between their goals in the investment and the company's direction.
- Rallyday's approach: Rallyday's Managing Partners are all former operators and can add additional perspective from having walked in the shoes of a Founder/CEO built businesses.
- Independent Board Members/Operators - independent board members can bring operating experience, industry expertise, and backgrounds which allow them to provide valuable oversight, guidance, and industry insights. In an ideal world, they have experience in the next chapter of growth that the company is about to embark on.
- Rallyday's approach: Rallyday looks for independent board members who have extraordinary backgrounds and can offer a wealth of operating experience. To activate this, Rallyday vets board members long before they're on the board, maintains a bench of board talent, and often engages board candidates around a company before offering them a board seat.
Be thoughtful about the construction of the board to fill in the management team's gaps - if there are weaker or missing areas of experience within your operating team, the board can help buffer those. Note: the board can never replace a skilled operator's involvement, rather they can help round out an emerging leader in your organization, and mentor or coach leaders to scale in their roles.
What is the typical size and composition of a Rallyday board?
Typically, Rallyday boards are composed of 5-7 people - the board should be small enough to be fleet and agile, but big enough to support the opportunity and the investment being made in the company.
- The CEO - if there are multiple founders, they won't all necessarily be on the board. Other executive team members may participate in board meetings, but typically aren't members of the board.
- 2-3 investors - from Rallyday, and depending upon the circumstances of the investment, potentially other investors.
- 2-3 independents - chosen based on areas of functional or industry expertise that complement the executive team.
Keep in mind: every situation is different and this is because every deal is different. The size and composition will be determined by the terms of the deal when you buy the portfolio company.
Tips:
- Quality matters more than quantity- with an eye on diversity of background and experience to create a more impactful and strategic board.
- You don't want the board to get so big that you're herding cats - the more board members you have, the harder it can be to build alignment. Don't build out a huge board.
The Chairperson can be the CEO, an independent, or from Rallyday - the chairperson is there to ensure a high-functioning board. The chairperson is responsible for preparing the agenda for board members (with the CEO), clear communication with the CEO, getting feedback from the board members on the strategy and the CEO, and then doing a timely assessment of the CEO at the end of the year.
What makes for a strong board candidate?
Board membership shouldn't be a notch on the belt - board members who are joining to build their board resume are less valuable than those who really lean into a couple of companies. Volume of board experience is less important than the ability to bring attention and focus to bear.
| Qualification Type | Qualification |
|---|---|
| Experience | People who have left operating roles - we love to find board members who are done with their operating tour of duty and now are looking to give back and support the next generation of CEOs/Founders. An extraordinary track record - they've built businesses, are very successful, and have built followership among leadership teams they worked with. |
| Capacities | Subject matter expertise - if there is a subject area that is essential to the company's strategy going forward, finding a board member who can lend expertise on that topic will help drive your strategy forward. Capable and willing to work with and develop operators - they need to be willing to be mentors and help the operating team become better in their roles. The ideal board member is a source of valuable feedback for the operating team. Network size and willingness to leverage it - board members who will open up their rolodexes and provide introductions can be important for both sales and talent acquisition purposes. |
| Traits | Availability- we look to find people at a place in their careers where they can dedicate significant time to board duties. A board role can be pretty intense and involve mentoring, coaching and development beyond board meetings. Bought in on the vision of the company - good board members have an aligned vision for the opportunity that is ahead of the business-they're not just joining for their financial gain. |
Where can you source strong board candidates?
Always try to tap into your network first - your first place to go should be your own network. It's the easiest to access and you often trust it the most.
You can get referrals and references from it.
Tip: Keep a bench of board members - investors should be constantly networking and keeping people in mind for upcoming board seats. The more time spent with someone, the higher the likelihood that you'll select the right person for the right board seat. At Rallyday, we tend to know people for 6+ months and have them spend time with the CEO and leadership team, for example in working sessions, to see if they have chemistry and connection, before placing them on the board. We want to see whether the CEO goes to them for their advice and actually follows it, before they take a seat.
Tap into existing board members for intros - the existing board members for the company often have extensive networks, and with their assistance you can often find qualified candidates.
Recruiting firms can be very effective at tough-to-find sourcing jobs - we have a few trusted firms that allow us to tap in and go way beyond our own network. Recruiters can help run a very targeted and intentional process.
Oftentimes, board members are considered and selected during the underwriting process - in the early days of underwriting, we bring in advisors to work with us that become great board members post-investment.
What does a good selection process for a board member look like? What does an effective scorecard for interviewing a board member look like?
Form an interview committee - the primary stakeholders, the CEO, the directors, and investors should comprise an interview committee to determine whether a candidate is the right fit. The CEO is key to the interview process.
Run a selection process like you would for any key hire - create a scoring system, follow it, build consensus, do back-channel references, and then do more formal references. This is not hiring your neighbor to come onto the board-it's a serious decision.
Here is a link to download the PDF template of the scorecard we use during a board interviewing process: Board Member Scorecard.
The CEO/Founder needs to be 110% bought in - they need to want to work with this person and be running towards them. You don't want someone designated by the PE sponsor. That's a fateful outcome if it goes that way.
What should the tenure for members of the board be? How do you successfully navigate changes to board members?
The objective is to get someone who is going to sign up for the whole hold period (3-5+ years) - we've seen instances where we sell the company and the CEO continues with the next sponsor and wants the previous independents to continue on with them because they've developed such a deep domain knowledge of the business. Stock that vests over the hold period incentivizes long-term relationships.
Short-term needs are better served by an advisor - board members should bring upside as the company continues to progress and develop. If you have needs that are specific to a particular function, or a particular moment in the company's growth journey, an advisor retained on a shorter timeline or in a more specific capacity can be a better fit.If it's not the right fit, you need to be able to roll off board members - you do the work to get board members who can be on the board for the long term, but if it's not the right fit or the company needs to adjust to find new subject matter expertise, you need to be able to have a conversation and move on.
How does the composition of your board change as the needs of your company evolve?
Build a strong original board and then try to be additive - be considerate in your board construction upfront. Then with some patience, look at what you learn and consider additions to the board. As the business is evolving and developing, that allows you to stay current in terms of the kind of board members you're bringing in.
