Pro tips for board governance: Read, listen, communicate, plan

While sitting on multiple boards over my career, including the Pillsbury Institute for Hospitality Entrepreneurship, it has become clear that board governance has significantly changed. The days of rubber-stamping management’s strategy and operational plans are over. Historically, boards were the domain of public companies and charities, with very few being constituted within private companies. Private companies were generally founder-led and managed with little need for board assistance. That has dramatically changed in today’s business and tech-forward world.

The path to the public markets is now shorter, more intense, and driven by venture capital, hedge funds, and private equity, trying to monetize their investments sooner. Billion-dollar valuations seem commonplace today, even for upstarts with one employee (think Medvi and other AI startups). With this as a backdrop, young entrepreneurs need a crash course in board fundamentals and processes.

Below is a list of recommendations and considerations a young entrepreneur should consider:

• Do some old-fashioned reading about governance. I personally like Ram Charan’s book Owning Up: The 14 Questions Every Board Member Needs to Ask. I would also recommend the course catalogue at the Corporate Governance Institute and classes offered at universities such as the Wharton School at the University of Pennsylvania; Stanford University; and my alma mater, Cornell University.
• Once educated, think about what kind of board you are looking for and what the composition should look like. There are now many tools for thinking about board needs and capabilities. Do you need functional, industry, and/or product launch expertise? Key tools include board portals such as Diligent; governance, risk and compliance (GRC) software such as AuditBoard; performance evaluations; and directors and officers (D&O) questionnaires.
• Use the resources of your investors to fill out your board. Embracing board oversight with investors will get you on the same page. That doesn’t mean you cede control; it gets the issues on the table and sets out oversight criteria before it becomes problematic.
• Set an operating model for decision-making that is clear regarding what needs board approval and what doesn’t.
• Set a yearly calendar for at least quarterly board meetings and a clear agenda for each. Don’t avoid sensitive subjects such as risk management, regulatory responsibility, succession planning and crisis management.
• Get to the heart of the business by including your board in strategy discussions, scaling the business, and revising the business plan on a revolving basis. Oversight of AI, cybersecurity, virtual reality, finances and talent must be ongoing and revised.
• How will you communicate with the board? Whether you will use email, Slack, Diligent or a combination, have a plan for smooth and concise communications that do not bog the board down in minutiae. Appoint a director to facilitate communication with the larger board.
• The hot button of compensation should be addressed early and often. Most entrepreneurs figure that this topic will sort itself out as the company matures and becomes profitable. Today’s startups are different. They tend to be tech-driven and less people-dependent and need multiple rounds of financing. Compensation and control must be considered early in the launch phase. Create a compensation philosophy that reflects your beliefs on cash, incentives, equity and voting rights.
• Make the most of the limited time you have with your board. I highly recommend you set specific time frames for board topics. If it’s too short, decision-making gets truncated; too long, and people lose attention.
• Put a board evaluation process in place that allows for candid feedback on expectations, performance and the board refresh method.
• Finally, make sure an exit strategy is always in place. Down the road, if you want to go public, sell to a larger private equity firm or sell to a competitor, how will you and the board make these decisions? Understand what your investors want before you start fighting about it. Preparation is the key to success. I can say I have never met an overprepared CEO/founder or board.

Keith Kefgen ’84 is a co-founder and managing director of AETHOS Consulting Group, a boutique human capital advisory firm serving the global hospitality industry.