Effective board governance is a necessary element in building shareholder value.
Building an effective board: How to avoid common mistakes
Frequently startups make common mistakes that prove detrimental to the effectiveness of their board.
To avoid these pitfalls, make sure you:
Resist the temptation to recruit trusted friends and long-time professional or personal acquaintances. (Think of these as “buddy boards.”) Founder/CEOs often covet buddy boards because they are quite certain these types of directors will remain loyal, rubber-stamp their decisions, and never ever consider firing them. But buddy boards cannot objectively assess CEO performance—let alone make potentially difficult decisions that flow from that evaluation. Steer clear of them.
Have the board run a formal performance review of the CEO. Seriously. Most startup and growth-stage boards still don’t do it. It should be conducted at least annually. And include an in-camera session on the agenda of every board meeting in order to give the board an opportunity for a non-structured discussion about the CEO’s performance, as well as any issues arising from the board meeting, in the absence of the CEO.
Have the board evaluate their own performance. The board should engage in self-evaluation annually and replace board members who are not engaged, not attending meetings, not participating on committees and not adding value.