Viewed from the outside, board selection and corporate governance can seem like a bit of a black box — particularly at a startup. Generation Investment Management partner Dave Easton spoke at TechCrunch Early Stage about how to build a board as a founder, and specifically how to build a board you can live with. Easton’s own ample experience serving on boards as both a full member and as an observer, as well as Generation’s focus on building sustainable, ethically managed, mission-driven businesses helped peel back the curtain on the murky topic of good governance.
On the composition of boards
Easton noted that many boards end up overcrowded — in terms of both the number of people and also the background of those present. Mixing up the type of board members you have managing your corporate governance is key, he said, especially as a company grows in size and maturity.
In terms of fields, the sorts of things that we find that often go wrong is when your board is stacked full of investors. I think investors are great — I’m an investor. I think there are super useful things investors do. But five investors is not very useful, right — it’s just more people who will generally think the same. So a typical thing that we’re doing when we come in is, we’re saying we’re not taking a board seat, we’re gonna give our board seats to an operator — someone who actually knows what they’re doing. When you’re in the earliest stages it’s probably fine to avoid operators and just have one or two investors. Particularly operators who come from, like bigger company backgrounds, they’re not necessarily so helpful when you’re getting product-market fit. But as you get bigger and bigger, you know, operators start to trump investors, and we think boards need to move more heavily in that direction. (Time stamp: 09:34)
Don’t put settled topics up for debate
On the subject of what should actually take place at well-run board meetings, Easton said that one of the most common pitfalls he’s encountered is when management sort of performatively offers up subjects for debate. It’s something that’s easy to do, but it also ends up not only being wasteful of the time of those present, it also leaves a bad taste in basically everyone’s mouths.
The thing I most commonly see go wrong here is where people are having the wrong discussion. And that really starts from management teams not making it clear when they already know the answer. So a number of times I’ve been in board meetings where management present a whole section, and they asked for the board’s feedback — but actually, the last thing they want is the board’s feedback, because they already know what the answer is. And that’s pretty frustrating for the management team, because they know the answer. And so they hear people who know a lot less than them debate it for a while. And then dawns on the board members that actually, management already know what they’re gonna do here, so what was the point of that? (Time stamp: 11:44)
Keep open lines of communication to avoid dysfunctional boards
Easton said that one way you can avoid going down the “bad path” when it comes to boards is to set up regular checkpoints and opportunities for both board member self-reflection and for feedback between management and the board. Keeping those lines of communication open and consistent can help identify potential trouble spots before they become actual problems.
Running regular board surveys, which you can find plenty of examples of on the internet, can be incredibly easy and quick. And having the board reflect on their own performance is really important. The other thing to say is that mutual feedback is also really important. So having time [ … ] for the CEO and the board member to sit down and give proper mutual feedback, meaning the board member saying whether the CEO is doing well or badly, and also the CEO saying the same for the board member — that is unbelievably rare and unbelievably powerful when it happens. (Time stamp: 16:21)
Vanity boards typically don’t work in your favor
During the audience Q&A, one thing that came up right away was the question of vanity boards. We’ve all seen splashy announcements of celebrity X or personality Y being assigned to a startup’s board, and it rings of “stunt casting” most of the time. Eaton basically agrees that this is almost always a bad look, and further suggested that you can achieve a lot of the same aims with other mechanisms, like creating advisory positions for these people.
I’m not a fan of vanity boards. In general, I would see them as, more often than not, red flags. So people are going to be board members in name only. It’s two things: One is you don’t actually get the purpose of a board, which is to have real debate and real discussion among people who genuinely want to ensure the long-term interests of the company and its broader stakeholders. So for me, it’s a bit of a red flag. And there’s generally other ways you can get that. (Time stamp: 19:51)
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