Board Support

Cultivating a Strong, Effective Board of Directors

Board Support

Board Management, Compensation and Committee Expertise.

Board Management is how a company’s management team composes its Board, communicates with Board members, compensates its Board, runs Board Meetings and Committees, and how the Board of Directors is governed.

By following some best practices, relationships and interaction between a CEO or founder or senior management team and its Board of Directors can be optimized for maximum effectiveness.

You can leverage the expertise of TechCXO Finance partners to help be your most effective.

TechCXO Board Support Services

Managing a board of directors can be a huge challenge even for experienced entrepreneurs. What do they expect for a meeting agenda? What should we pay our Board? Should we have independent Board members?

The preparation that is required to present your story in a concise and accurate fashion during a Board Meeting can take days of time from you and your team. And just when you get through one meeting, it can feel as though you must start preparing for the next. Many entrepreneurs complain of the endless cycle of preparing for board meetings. And in our experience, most entrepreneurs view board meetings as a necessary evil and something to manage away.

It doesn’t have to be that way. By following a few basic principles and avoiding some of the more common mistakes, you can make board interactions — including meetings — a positive experience and leverage the valuable experiences of your board members to help you navigate the growth of your business.

The Board oversees the business for many processes and procedures around strategy, risk and exposure. It helps guide the management team and decides on corporate matters that cannot be delegated to lower-ranking officers.

We can assist and mentor founders and entrpreneurs and serve as a liason with your board.  Some practical to dos include:

  • Get to know Board Members - Spend some time with them outside of official meetings and ask them what their expectations are for board meetings.
  • Have Your Management Team Participate - Have the leaders of finance, sales, marketing and operations lead the discussions regarding their areas of responsibility. Emphasize the strength of your team and enable them to be part of the planning process with your board.
  • Establish Independent Board Member Representation -  Independents can inject some much-needed objectivity into an environment that can become insulated. There is usually a cost to bringing on non-investor board members, but the potential benefits far outweigh those costs.
  • Control Agendas and Materials - Let your board members know that they will be expected to have reviewed the material so you can spend the time discussing important issues and not presenting the basic material.

More specific supports services are in the chart below:

 

Board Committees

Committees can be a divide-and-conquer mechanism to help with the workload of a Board. They can efficiently focus more deeply on issues and make recommendations to the larger Board.

There are varying thoughts about Board Committees.  For a smaller and cohesive Board, they may not want committees at all, except for the formal governance requirements necessary for groups like the Audit Committee.

Other Boards may consider committees an essential component to how they are structured.  Common Board Committees may include: Executive, Development, Nominating, and Governance committees.

Good committee practices, include:

  1. Clear Goals and Job Description as defined by bylaws
  2. Strong but inclusive Chairperson
  3. Committed Members who invest the requisite time to be effective
  4. Clear evaluation process and decision making criteria.

Audit Committee Authority

The Audit Committee has access to all of the company’s accounting systems, including books, systems and even accounting people, such as the controller and accounting managers, for information and records.

The Audit Committee chairperson also has the authority to retain outside service providers and advisors they deem necessary, such as legal and accounting firms.

Audit Committee Ground Rules

Your success in dealing with your audit committee can be captured in two words: “No surprises.”  You can pave the way to smooth interactions with some pro-active pre-planning.

You will first want to understand the audit committee’s audience, goals and rules of engagement.  The Board establishes the Audit Committee to help the Board to oversee the company’s control environment.

Special emphasis is on three areas: internal controls and financial reporting; the qualification and independence of the independent external auditors; and the performance of the company’s internal audit function and of external auditors.

You will want to come to some agreement on key issues such as the definition of materiality.  For example, you want to make sure there are no discrepancies in understanding of revenue recognition policies.

Audit Committee Reporting Structures

In understanding reporting structures, you’ll want to know whether or not the internal auditors have direct functional reporting to the audit committee and an indirect line to management for administrative activities.

You’ll also want to be involved with the internal audit risk assessment and audit plans, including activities and objectives regarding Section 404 compliance, if applicable.

Audit Committee Chair

The audit committee chair plays a critical role in creating effective audit committee (AC) meetings, setting priority and checklist items, ensuring the quality of premeeting materials, aligning the audit committee with other board activities, understanding risk within the business and supporting the CFO.

The AC chair also has tremendous cultural influence on the committee’s work load, style, tone and attentiveness. The best AC chairs understand the committees duties and each player’s responsibilities. She is readily available for additional insight into urgent matters and controls mission creep to ensure that she or the committee do not take on too many responsibilities, such as in the area of risk management, that interfere with their charter.

Audit Committee Chair and CFO Relationship

For both the Audit Committee chair and the CFO, a strong, healthy relationship is critical. This may require informal time spend together to build rapport and to fully understand long-term financial performance goals and between-meeting developments. From the CFO’s standpoint, this is a most important relationship and you will want a “meeting before the meeting” with your Audit Committee Chair.

Another best practices is to schedule regular meetings in the middle of field work and prior to the year-end audit committee meeting

Board Financials

What should be in the Board Financial’s package? Here are the things to minimally include in businesses that have a meaningful monthly cadence – which most build stage companies do. For some it’s weekly; an example is an app where week-over-week growth is a meaningful metric.

  • Last month’s P&L vs. original forecast, and YTD vs. forecast
  • Last month’s P&L vs. prior month – dollars view
  • Last month’s P&L vs. prior month – unit economics view (meaning, take your P&L, and divide everything by the unit that’s most important in your business. Could be square feet, available days for appointments, hours sold, hats – you name i
  • Meaningful YoY stats by product line, location, or some other way to give investors an idea of where growth is (or is not coming from
  • Headcount summary – by department, where are we against plan? For many startups, this is where cash either gets burned (hiring too fast) or revenue growth is thwarted (because you can’t find the right head of marketing and while this saves you money in the short run, it means you are not driving top line in the medium-term
  • Rolling forecast vs. original projection – meaning, if I re-forecast the business for the rest of the year (which you should be doing on an almost constant basis), where am I going to end up
  • Cash projection

If you have these ready to go three days ahead of time in well-formatted slides with pithy color commentary, you’ll serve everyone well. You might need to add a few more based the particular business that you’re in, but this should get everyone grounded in the results and communicate how things are going. Investors will have the opportunity to look through the numbers and draw some initial conclusions, which will make the financials review section of the meeting much smoother. Your goal as the CFO is to let the strategic discussion take center stage and let the numbers support that discussion.

Board Procedures

Board Meeting Procedures

Below are the things which need to be followed for a board meeting to be successful:

Notice of Board Meeting

The notice should include necessary information such as date, time, and place where the board meeting will be held. The timely notice should be given to participants so that they will have sufficient time to respond and prepare for the meeting.

Quorum

The board has a quorum if the attendees are more than 50% of the total members. Having a quorum during meetings will ensure the company that it has the majority vote of the board members.

Motions

The Chairman of the Board is responsible for dealing with the motions made during board meetings. Each member of the board has the responsibility to ensure that the motions are managed accordingly.

Voting

Voting can be done by the members of the board through the stating of yea/yes votes or nay/no votes. Voting can also be done by a show of hands or by ballot. Some companies vote through a roll call. The Chairman of the Board may call for a retake of votes if the results are not clear.

The following are other protocols to be followed during a board meeting:

  • Only one person speaks at a time
  • The Chairperson decides and recognizes who has the right to speak
  • All comments are made through the Chairman of the Board
  • No cross conversations
  • No vulgar language nor verbal attacks against any member of the board
  • Rules are respected and obeyed
  • A motion should be seconded before the Chairman can restate the motion
  • Only the Chairman can announce the vote results
  • A member who notices a violation of a rule can call out a “Point of Order”.

Board Compensation

Board compensation for directors of large, publicly traded U.S. companies has passed a threshold of $325,000 per year in total fees. What’s less clear is how directors at private companies and startups are compensated — a key consideration in your Board Management and compensation committee.

Elements of Board Compensation

Total compensation for all public and private company board directors can have any number of elements that may include:

  • cash retainers
  • per-meeting fees
  • full-value stock awards
  • stock options
  • signing equity grants
  • ownership grants, and
  • deferred compensation.

Large Company Board Comp vs. Small Public Companies and Startups

The differences in directors’ packages at publicly traded S&P 500 and Russell 3000 companies versus private companies and startups are significant. For example:

  • Cash Retainers and Per-Meeting Fees – Publicly traded companies generally have richer cash payments and annual retainers of $200,000 or more. In contrast, private companies and startups may either pay a per-meeting fee or a much smaller retainer. (See chart 1)
  • Equity vs. Cash – Equity represents the majority of total fees for public company directors — about 60% of total compensation versus 40% cash on average. Some startups may forego cash payments altogether and instead attract board directors with “real equity” in the form of stock options or restricted stock/units.
  • Forms of Equity – Public companies primarily provide equity in the form of full-value stock awards (i.e., fully vested stock, deferred stock, restricted stock/units) and, perhaps, small stock option grants. Private companies and startups, whose stock is generally not liquid and whose value realization depends on an event, such as an IPO or the sale of a company, will grant restricted stock or stock options.

Compensation for private companies and startups is considerably lower, as those directors face less risk and fewer disclosures and regulatory hurdles than their public counterparts.

“Early-stage companies should expect to pay $5,000 per meeting or $25,000 per year to your directors. That number increases the closer a company gets to an IPO and can be in the range of $40,000 per year for pre-public or public companies,” said Chris Thomajan, TechCXO's Managing Partner - Boston. “It’s worth noting that investor directors — your VCs — do not get compensated at private companies.”

All the Ways Board Members Receive Compensation

Board members receive compensation in the form of cash, equity, stock options, and, for startups, ownership equity grants. According to an FW Cook report, the average mix of compensation of cash to equity is 40% cash and 60% equity. Technology firms skew higher with equity representing more than 70% of total compensation.

  • Cash Compensation / Retainers – This is direct cash paid to each eligible director for their service. Most companies prefer a retainer-only structure versus paying a retainer plus meeting fees. As many as 85% of mid-size to larger companies prefer to have only retainers. Startups, however, may tend to prefer the cash plus meeting fee model.
  • Meeting Fees – Just as the name implies, board members are paid for a pre-set number of meetings per year (see averages below), and additional payments for more meetings may exist. Startups may only pay either a small retainer ($25,000 on average) or a per-meeting fee of approximately $5,000.
  • Equity Compensation / Stock Awards & Stock Options – Overwhelmingly, mid and large-cap companies grant an “equity retainer,” which is a full-value stock award annually. Most do not issue stock options to directors. However, some sectors, such as technology, provide both full-value stock awards and stock options.

Pay Differences Between Board Directors Based on Role

If you are an independent board member of a private company or you are a lead director or committee chair, more compensation can be expected in the form of additional retainers and/or meeting fees.

“Distinctions are certainly made for the specific role of a director. The chairman of the board or someone with relevant scientific or financial expertise like an audit committee might be paid more than a regular director,” according to Thomajan.

Independent Directors

Chris Thomajan, who has sat on more than a dozen boards, many of which are for biotechnology firms, is a strong advocate for attracting independent board directors as quickly as possible.

Unlike a company’s officers, such as a CEO, and their investors who sit on your board, independent directors are typically paid a combination of cash and equity for his/her services.

There are several ways to structure the cash compensation, but in general, the director is either paid a flat fee per meeting or a flat fee per year (paid quarterly) that assumes a certain level of commitment. He also said that while there is a cost to bringing on non-investor board members, the potential benefits far outweigh those costs.

“Independents can be an invaluable source of industry knowledge, but perhaps more importantly, can inject some much-needed objectivity into an environment that can become insulated,” Thomajan said. “Independent directors also expect to receive equity grants along with their cash compensation. The amount and frequency of such grants also varies by the stage of the company. However, an early-stage company should expect to grant 0.1% to 0.25% of equity with a vesting period of two to three years. Additional annual grants are also expected.”

What to Expect

Expertise

TechCXO Finance partners have been involved in Board Management, Compensation and support through hundreds of engagements, as well as financial planning, investment, capital raising and many transactions, both from the sell-side and buy-side. We understand what is important to Board Management. You can be sure you will be getting expert and actionable advice.

Speed & Capacity

There is little to no learning curve when engaging a TechCXO partner. Each financial pro has led multiple organizations as a C-sute executive, sat on numerous Boards and chaired many committees. We move quickly to provide unique insights.

Plan of Action

Your trusted expert will pull together a clear plan of action – driving milestones, identifying risks, and establishing strong communication plans. They can lead Board activities or advise the senior management team.

Impact

Managing a strong, effective board will inevitably make you a better manager and improve your company’s chances of success

Good committee and meeting management builds confidence in your team

An active and engaged Board will invariably add enterprise value

Why choose TechCXO as your Board Support Partner?

TechCXO helped pioneer the on demand executive model in 2003 from a simple belief: high-potential companies can benefit from proven part-time and interim executives who they otherwise may not be able to access due to cost, availability, or they didn’t yet need them full time.

We have grown top-line revenue in our own firm every year since our inception due to reputation, referrals, and outstanding work.

We’ve helped more than 7,000 companies -- including billions in capital raises, exits, and transactions -- to date, from startups to Global 1000 companies.

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Our Team

Kumar Ampapathini

Partner

Pamela Banks

Director

Dan Benetz

Partner

Rajiv Bhagat

Partner

Peter Biro

Partner

Michael Boudreau

Partner

Kerry Byler

Partner

Michelle Carlton

Senior Director

Mike Casey

Practice Managing Partner

Frank Connolly

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Jim Corr

Regional Managing Partner

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Kent Elmer

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Eric Froistad

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Ron Giaquinto

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James Jackson

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Joe Jessup

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Chris Joe

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Joe Johnston

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Dale Kirkland

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Matthew Klaiber

Senior Director

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Kristin Koepenick

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Michael Levine

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Jim McClintock

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Mike McEachern

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Joseph Migliozzi

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Tom Morton

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Viraj Parikh

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Sharon Reese

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Karen Reynolds

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Paul Sansone

Regional Managing Partner

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Debbie Schleicher

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Allison Somerset

Director

Morris Stemp

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Ted Stone

Regional Managing Partner

Roberto Trevino

Principal

Cristian G. Valbuena

Director

Michael Weinstein

Partner

Mark Zadell

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