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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.
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About the Author: Dora Vell, an internationally recognized expert in executive search for board members, CEOs, “C” level executives, Vice Presidents and board members builds world class management teams for start-up organizations through Fortune 50 firms. Now, you can get FULL ACCESS to her FREE Vell Entrepreneurial Boards Composition Survey offering an updated perspective with new angles relevant for your entrepreneurial business climate. Get it now at www.vell.com
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