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Being Cautious About Independent Board Members

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Michael Brown

January 09, 2019
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Supporting our entrepreneurs in the choosing of independent board members is something that has been front of mind for us recently as many of our companies have had the capability to add new blood to their Board of Directors. Fred Wilson had a great post in July on what he defined as “trophy board members.” These are board members that have a big name and credibility but don’t show up and don’t really understand the business. They hurt you more than they help you. There are several versions of this that we have seen over the past few years that are worth mentioning. In the context of choosing the right independent board members for your company, there are a couple alternative versions of the trophy board member that can really hurt in an early stage company context. Here are the versions we tend to see in the wild.

1. The “Investor Aligned” Independent Board Members. This is an independent that is recommended hard by your investors. They come with the pedigree, are at the right stage of growth, and understand your problems as a founder. They are sometimes current or former CEOs of portfolio companies of your VCs. You do your reference checks and they pass with flying colors. The challenge, of course, is they are aligned with the investors and are not going to be independent. We’ve seen M&A transactions, earnouts, fundraises, and employee matters go sideways. The reason is some version of “I have to work with these people again” or “They are on my board too” or “I need them for my upcoming fundraise.”

2. The “I’m Not Actually Ready For This” Independent Board Members. This is an independent that is joining the board of a company usually for the first time. They check out just like the above mentioned independent board members. They are a few years ahead of your company, likely have solved a lot of the problems you have, and the references check out. The challenge, of course, is that they have never really served on a board. Their ego usually inflates once they have this role, and rather than be an advisor they try and tell you how to run your company. There are other sub-versions of this, but you get the idea. Even worse, these folks sometimes shut down when you don’t listen to them.

3. The “I’m Essentially Retired” Independent Board Members. This is the opposite of the above, and usually an independent that is joining the board of a company for the last time. They check out. They are likely very senior and probably started a company or many companies in a space that you are operating in. They’ve gone through all of the growth phases of a business and are supposedly open to more help because they have the time. They talk about coaching and spending days at your company. The challenge, of course, is that they are basically checked out. Similar to the trophy board members that Fred mentions, they are traveling a ton, leveling up with other interests, and spending time out of the industry and market you operate in. Like the above version, they also get frustrated when you don’t listen to their way of operating a company.

4. The “I Am Not A CEO” Independent Board Members. This is an independent that has not been a CEO of an early stage company before but likely has been a c-level executive before. A huge disclaimer here is that many times these people work great if you reference them right and spend the required time to get to know them. But sometimes they do not. You need some help on a specific area of your business which probably drives the most amount of scale and growth. They check out and are an expert in this area with a strong pedigree and great references. The challenge, of course, is they have not been able to translate their own experience outside of that specific business unit. The broader leadership challenges are difficult for them to grasp and so you don’t get the best advice or help. In some instances, they are quiet when a topic comes up that they do not understand rendering them ineffective as an independent voice.

Founders should treat independent board directors like some of the most important hires they will make in the history of their company. If you do this yourself, go slow and take time to get to know people before pulling the trigger. If you don’t do it yourself, make sure you hire a recruiter so you and the rest of board can be comfortable with it being independent and get the best candidates.

If you liked “Being Cautious About Independent Board Members In Early Stage Companies” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.