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The best founders know the power and impact of an intentionally-selected and well-managed board of directors. The best founders prioritize running, selecting, and leading this group, and build a board that becomes a secret weapon in their arsenal of success.
But, for many early-stage founders, the fear of losing control or lack of understanding when it comes to board management — and, in particular, adding independent directors to their board — leads to either challenges down the road or a missed opportunity.
To dig deeper, we sat down with Bolster CEO and Co-Founder Matt Blumberg.
First, Can You Explain Your Rule of 1’s for Boards?
The rule of 1’s for building your board of directors means that on Day 1, you’ll want to have one member of management on the board, and one independent director for every one investor.
So, when you initially fund the business, you should have three members of your board from the start: one member from management (likely the founder), an investor, and an independent director. You should work to maintain this 1:1 ratio between investors and independent directors moving forward, too.
What Are Independent Directors? And Why Should Early-Stage Founders Add Them to Their Boards?
Independent directors (like CEOs, COOs, and other operators) are very special and distinct advisors. Rather than management (part of your business) and investors (providing capital and maintaining equity), the role of independent directors are all dependent on what the company needs — and add diversity to your board early on, as these individuals bring a distinct perspective and unique experience set that you don’t get from VCs or co-founders.
When Should Early-Stage Founders Add Independent Directors?
ASAP. Oftentimes, founders wait too long — Series C and beyond — to bring on these independent directors and miss out on building diverse boards from the beginning.
It should be one of the first things you do. Some founders get nervous about bringing on an independent director they need on day one but might not need two years from now…but that’s okay. And why you just need to think early on about term limits.
What Is the Ideal Candidate Profile for an Independent Director?
The ideal candidate profile for an independent director completely depends on what your company needs.
For example, if there are gaps in your expertise, you might want to fill that gap through an independent director with experience in that area. For example, when we started our last company, Return Path, I was a first-time CEO, so I brought in an independent director who was an experienced CEO because we were missing that leadership perspective.
At Bolster, we ran into a case where none of our management team had deep experience with marketplaces, so we added an independent director to our board who could really help advise us in that area. I know another example of a founder adding an independent director to their board whose sole purpose was to serve as the voice of the customer.
Any Go-To Interview Questions or Methods When Hiring Independent Directors?
The interview process shouldn’t feel too different from how you’d hire a senior executive position. That said, one topic you should bring up is governance philosophy. There’s no right or wrong answer to either of these two questions. Think of them as conversation starters about the role of the board and an opportunity to make sure you and a future director are aligned — or at least that you understand where there might be a lack of alignment and why.
First, when it comes to board governance philosophy, there are two major ends of a spectrum: the Reed Hastings opinion that the board’s only responsibility is to hire, fire, and compensate the CEO, and the opposing belief that a board’s role is to engage deeply with a company’s strategy, management team, and day to day operations. Where is your candidate on this spectrum? Where are you?
Second, you’ll want to ask their opinion on is where they sit on the spectrum of shareholder vs. stakeholder capitalism — if they see their responsibility as solely maximizing shareholder value, or if they have a broader view that they should maximize the value of all stakeholders (including employees, customers, vendors, and the community and environment at large.)
What Does the “Hiring” Process Look Like?
The person you put on the board needs to have met the rest of the board first. That’s a given.
I’d also strongly recommend an in-person interview between you as CEO and any finalist that’s several hours long, with some kind of activity to get a general sense of chemistry or if you “click” with them — that can be a meal, hike, etc.
Next comes the “audition”. Before someone joins the board, have them attend a board meeting, and allow current members to veto the addition. All of this together forces the founder to think about the onboarding process, dive deeper into the board book, and consider if candidates fit with the “style” of the board.
How Can Founders Best Activate Their Independent Directors?
Founders should tend to their independent directors like they would to a garden — consistency and intentionality go a long way.
Spend extra time during the onboarding process and have them go deep with your CFO and Head of Product. Assign a “Board Buddy”, or someone they can go to for answers. Make an effort to spend time with them between board meetings to get their opinion on a company challenge — or to give them “homework”.
What Should Founders Keep in Mind to Promote Inclusion During Onboarding and Throughout the Role?
Adding diversity to your board is great – but the next step is making sure you’re fostering an inclusive environment. As mentioned above, assigning a “Board Buddy” can help with this.
If this is the first diverse addition to the board, be wary of tokenizing diverse individuals — recruit in pairs if possible.
Lastly, the way you give feedback is crucial. You want your independent directors to be successful, and the way you give feedback needs to foster an overall positive learning experience. Read the room.
What Compensation and Equity Arrangements Are Appropriate for Independent Directors?
Yes, you need to compensate your independent directors, but it’s rare for that compensation to be in cash. Instead, you’ll come to an equity agreement that’s typically 50% of what you would give a C-level executive.
Early-stage independent directors should be given a two-year term, with a 2-year vesting schedule — especially if you’re pre-Series B — and full vesting on Change of Control. In this case, you’ll want to adjust the equity consideration to be 25% of what you’d give a new C-level hire, since that grant is a four-year grant.
How Do Independent Directors Play into the Evolution of the Board?
As the board evolves and grows, you’ll want to make sure you maintain the 1:1 ratio of investors to independent directors.
With your set two-year terms, you’ll have productive turnover as your company continues to find product-market fit, which spurs new challenges and needs from independent board members. As the team composition changes, and the business evolves, your board should follow suit. You can always keep renewing rock star independent directors for successive terms, and as your company gets larger and more mature, you can move to 3- or 4-year terms.
Thanks for Your Time! Anything You’d Like to Share About Bolster?
Of course — Bolster is an on-demand executive talent marketplace that accelerates growth for companies by connecting them with experienced, highly-vetted executives for interim, fractional, advisory, project-based or board roles.
We’ve written a lot about how to build your own board as well, so you can check our ebook if you’d like to learn more!
