Don’t Chase After Rock Stars
Today’s public companies aren’t perfect, but in terms of board recruitment they do provide a worthwhile template for startups seeking to assemble a first class board of directors. The reason for this is that prior bad actors – think Enron, Yahoo and Hewlett-Packard – and subsequent remedial actions – Sarbanes-Oxley and the Dodd-Frank Act – have placed public company boards under tremendous shareholder and regulatory scrutiny to ensure the right individuals are in the boardroom.
In January, the Deloitte Center for Corporate Governance and the Society of Corporate Secretaries and Governance Professionals published a report from a survey of nearly 200 corporate secretaries of public companies. The report found that the top attribute sought in new directors is industry expertise. This represents a significant shift for the public company sector, which has historically sought “professional board members” (i.e. those who have extensive public company board experience).
Startups need to emulate public companies in regard to how they search for directors. Specifically, they should begin the process with a comprehensive assessment of the skills-sets and industry expertise currently included on the “team.” They should then determine what talents and expertise are lacking, but necessary, in order for the venture to achieve success. The results of that assessment should serve as the guidepost for the search process.
The search process itself does not need to be complicated. Although networking is the traditional method for identifying and recruiting board members, startups should also leverage their online connections to supplement this course of action.
Many startups, however, shun this process for the pursuit of that big-name individual who they envision as the game-changer – the one who will legitimize their pursuit of fame and fortune and put them “on the map.” Of course, having a big name on a startup’s board can have significant benefits. In particular, that individual could make an investment in the venture or serve as a catalyst for other investors. Professional angel investors and venture-capital firms take notice and think: “What does this person see in this venture?” In addition, big-name individuals can connect the startup with key figures who can potentially accelerate the growth of the business.
But more often than not, the negatives outweigh the positives when it comes to the pursuit of the rock-star board member. The problem is that often this relentless pursuit is done without consideration as to whether that individual, and his or her skills and expertise, is relevant to the startup and its intended market. Furthermore, the startup’s founders rarely contemplate the potential impact on the business. Time and resources, already on short supply in a startup, are spent trying to find a way to connect with that individual. The founders’ attention is directed away from where it should be — the business.
Worse still can be the consequences if the individual actually joins the board. In many cases, the individual is already stretched too thin with other commitments and can’t perform as expected. As a result, other members of the board have to pick up the slack and may begin to feel resentment – not toward that individual, but the startup and its founders.
Startups face an inordinate number of challenges in their path to success. Chasing the rock-star board member can often be an unnecessary obstacle on this journey. The goal for a startup should be to engage quality board members who add real value to the venture. In this regard, startups should take a cue from public companies and recruit board members who provide needed skill-sets and industry expertise.
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