Board Management: Independent Board Members
As part of your Board Management activities, we point out that you’ll want to bring in an independent board member as soon as possible. This person should neither be a part of your team nor an investor. 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. There is usually a cost to bringing on non-investor board members, but the potential benefits far outweigh those costs.
What is the benefit of having an independent director on my board?
There are two primary benefits to having an independent join your board. The first is described by the title “independent” because an independent director is presumed to provide a level of objectivity that might be missing in a group of insiders. Management may struggle to view issues and challenges objectively because they are often in the center of these discussions and rely on the company for their livelihoods. Investors might be influenced by events, good and bad, in their portfolios and might not be able to separate those issues from the governance of the company.
The second benefit is the ability to leverage deep industry or scientific knowledge. An industry veteran who can help the company through a financing or a partnership discussion can significantly improve the company’s chances of success. While someone with specific sector expertise, whether it is science or finance, can play a critical role in helping to guide the company’s strategy.
When should I think about bringing on an independent director?
Obviously, you need the resources to compensate these individuals, but you must also have broad agreement from the rest of your board. Being able to articulate the issues you are trying to solve and the benefits of bringing on an outsider will be key to convincing your fellow board members that this is a commitment worth making. Some companies are opportunistic and bring on a new director if that person becomes available and is willing to work for the company. In general, sooner is better so the person can have a greater impact on decision making and the company’s success.
Where do I find independent directors?
Once you have made the decision to at least consider bringing on an outside director, then you need to do everything you would normally do to recruit talent. Write a job description with input from your other directors on the role and expected compensation. Use your network to identify qualified candidates and if you are not getting the traction you seek, then you may have to consider employing a recruiter.
In summary, inviting an independent voice to join your team can be a huge advantage for your company. Make sure you build a consensus before you act and take great care to define the role and ensure that your new director is a good cultural fit.