Structuring your Board of Directors
Establishing a Directorship Board for your new venture is a challenge as they influence the direction of your business. Any mistakes made by the board could be disastrous. Structuring your board of directors in your startup is there to oversee your business.
Especially at a startup, these aren’t the scotch-and-cigar-filled chambers where the wealthy split their fortunes among themselves.
Structuring your board of directors sets the direction of the company and also drafts the company’s rules and regulations. Additionally in the case of who is accountable for the success or failure of the business the board is the center of attention.
Be aware that your financial investors don’t need to join your board. Additionally, board members can fulfill four functions: board member, advisory board member chairman (a non-voting board member who attends meetings), or an active board member who is not on the board.
- Common Directors:- Structuring your board of directors to represent common stocks as well as shareholders. Common Stock Directors are frequently seeding investors as well as one or more of the company’s founders. Before deciding to raise the capital for venturesyour board will typically will consist of Common Directors.
- Preferred Directors:- Structuring your board of directors who are Preferred and represent preferred stockholders. These directors are typically the company’s lead investors, who make decisions in that on how they impact the interests of investors of all kinds.
- Independent Directors:- These independent members who are selected only to serve the interests of the firm are structuring your board of directors. Independent Directors are experts in the market who make decisions without being influenced by the loyalty of shareholders.
A board of directors with an established agenda and an action plan is vital in ensuring you’re successful with your company. Here is a step-by-step procedure to establish the board of directors that will help your business move toward the future.
Consider Having an Advisory Board
Startups typically opt out of using a traditional board until they have outside investors.
The board’s focus is on the best interests of shareholders and is not focused on the founders. The board is essentially responsible for the founders.
In addition, advisory boards can provide assistance, advice, or even introductions to prominent individuals, but there is no influence on the founding team.
In certain startups, the advisory council meets on a regular basis or more frequently to solicit individuals to invest. Additionally, the advisors get paid by way of shares of the company.
For new companies, the strategy of the board is crucial, and many do not include outsiders in their Structuring your board of directors until they’ve received Series A financing. Before that, they select trustworthy advisors and investors who are seed investors to join the board.
If they get Series A funding, they could bring in one or two experienced VCs along with a reliable advisor to serve as an outside board member.
Have the Right Number of Members
When you are filing your articles of incorporation it is common to choose the director or Structuring your board of directors you want to be the initial choice to start your business. Certain states only require one director, usually the CEO or the President.
A common mistake businesses fail to make is having an appropriate board of directors that has the proper number of directors to fulfill their mission. The ideal place to begin a new business is between three and five directors in the beginning.
This allows you to expand and can also reduce any possibility of a tie when voting takes place.
A larger number of members than that, in the beginning, could make scheduling a problem and could take a toll on your finances and any board with fewer members does not constitute a Structuring of your board of directors.
Compensation is crucial and should be kept in your mind and think about giving members access to a portion of their stock instead of cash. The most common amount is one percent of the costs or stock per quarter. This is in addition to a tiny retainer.
Typically, VCs seek to establish additional board seats, however, they should limit the number to not greater than 7 (the two founders and three to four VCs, and two other professionals from the field).
Hire Independent Directors
If a business raises funds via investors and subsequently acquires venture capital, the investors may request positions on their boards to monitor their investments.
However, startups should be wary because Structuring your board of directors members may make it clear that the interests of founders or investors are over the health of the business.
Outside directors can offer professional guidance and perspectives to the board members that you would not receive from a Structuring your board of directors who is close to the business.
Outside directors are usually experienced in making unbiased corporate decisions and are not burdened by an emotional or personal attachment to the business. They also have capabilities that may not be present in your company’s startup.
Don't Demand Management Support
Aiming for members of your directors’ board be in line with management can lead to catastrophe since the advantage for a director is their capacity to make decisions based on differing opinions.
Making the mind of Structuring your board of director’s belief of your board members to compensate by putting places at the table that simply accept the management’s decisions will waste your time and resources and could lead to poor business decision-making.
Maintain Alignment The Board's Role in this Matter
Your board of director’s structure must adhere to several legal and fiduciary requirements. They also are also tasked with additional duties that relate to the stage of the venture.
In early-stage startups, the members are expected to support the management (without supervising the company). For instance, they could aid in product development or give access to investors, customers and recruits.
The ideal is that board members be mentors for founders. Established startups, however, might require an additional type of support for growing sales, engineering, and logistics, as well as other tasks that aren’t suitable for the confines of a garage.
Establish a Structure for the Board
Think about limiting board members to four-year terms and adding additional regulations. Determine how new members will be a part of the board. Does management have the right to be able to vote? Can members pick their successors?
Structuring your board of directors requires a playbook and clearly defined duties and roles. Written governance guidelines should be established through the vote.
At a minimum, the Board must need to convene 4 times per year with a quorum or when there are urgent issues that need to be resolved.
Find the Right People for Your Board
While Structuring your board of directors members is a crucial source of assistance, guidance, and professional connections, not every board member is created equal.
Take into consideration your future While selecting the board’s members, take into consideration how they’ll perform in the future. Choose directors who are driven, eager to see your company expand, and have the plan to take your business from a start-up to a thriving company.
Create a clear outline for your job. Include the description and title of each member’s job at the beginning. Determine the purpose of each job, which includes the role the Structuring your board of directors is expected to take in the management of risk and strategy.
Select your favorite workhorse. Find at minimum one person on the board who is aware of your vision for the business and is able to manage the Structuring of your board of directors. Watch out for those who are only attorneys or accountants, and aggressively look for people who can run the business.
The infrastructure is crucial: Try to create an efficient structure in that you can create the team. Remember that as CEO, you have to report to the Structuring of your board of directors so you should form a group of individuals you trust and have the ability to accomplish tasks.
Be objective: Look to the obligation and leave your feelings to the side. Each member should be aware of their roles clearly as well as the role of the entire Structuring your board of directors. It is important for them to understand that they’re there to protect the business and not to protect their own interests.
Beware of all yes-men and women: Avoid those who are more likely to drink. Choose those who are wise and courageous enough to be able to recognize when they need to be a bit disagreeable with you.
Select a mixed-bag strategy: Try to create the impression of the diversity in the group. The diversity must be related to concepts, identity, and the skills. A group can be stronger than its differences.
Create a common vision for the next generation: Be sure all of these people are able to work together in the event of need. Make sure they have the same ambition and desire to get to the same place.
Recreate the concept that the line is imaginary: Be explicit regarding the roles on the Structuring your board of directors. Keep the CEO and chairman’s positions separate and distinct.
Pay fairly and take into account the past Choose those who have an extensive and valuable background. Examine their abilities and make sure to compensate them appropriately.
Conclusion
Structuring your board of directors is an elected board within a corporation that represents shareholders of the company and comprises the highest-ranking corporate positions holders. The composition of the BOD is different according to the organization.
A public company is required to maintain a BOD, whereas it’s optional for private or non-profit.
If you have queries related to Structuring your board of directors. Consult Odint Consultancy.
FAQ’s
The four different types of organizational structures include operational, multi-divisional flat, and matrix. There are also circular, team-based, and network structures.
The most effective Boards that are truly effective are clear about their mission and mission, and they have directors who are able to collaborate effectively as they fulfill their own duties like supervising the succession plan, purchases, and capital allocation.
There isn’t a set number of members on corporate boards Many organizations that seek cohesion and diversity choose the range of 8-12 directors.
In the majority of states, it is permitted for executive directors or chief executive officers and other employees who are paid to sit on their organization’s board of directors. However, it isn’t considered an acceptable practice since it’s a natural conflict of interest for executives to share a seat with the organization that oversees them.
The average pay for a Board of Directors in Financial Services firms averages Rs7.5 Lakhs per year (Rs62.5k per month).
