The first encounter with anyone can be very exciting. Just like a first date, it can leave a lasting impression and long-term reverberations that could be either good or bad. This is equally true for first board meetings of new startup venture-backed companies. After more than 30 such "first date" board meetings, I am as excited as ever for the next one. What have I learned? What can be done to make sure they are positive and productive experiences for everyone and set the right direction for long-term shareholder value creation?
The primary function of any board is to make sure the governance of the company is according to its articles of incorporation and the daily decisions made by management are in the best financial interest of shareholders. How well and in what manner this is carried out is crucial for the success of the company and its shareholders. The first meeting will often set the style and tenor in which the board operates and how its culture will evolve. The initial meeting sets up many of the routine housekeeping functions that a company needs to operate. There are many roles that are assigned, such as electing officers, committee memberships and spending authorization levels for executives. The routine stuff is easy to do. The one exception is the audit committee, which in the days of Sarbanes Oxley, is often filled with "reluctant volunteers."
Then begins the hard part of making sure you have a productive board. There is the usual getting to know the members and even figuring out what chair to sit in, since it will likely be the same chair you will sit in for the next five to eight years. By the way, it is always a good idea to get a picture taken of the "founding board," just in case it's a huge success. All sorts of new "founding board" members show up for the IPO party.
So now that everyone is sitting in the right chair, what can go wrong? In one word, "chemistry" -- how the board's personalities mix can get the board off to a wrong start, much like first impressions on a first meeting. For example, if one member sucks up all the oxygen in the room; the effect is to diminish valuable contributions from others. The chairman's role in controlling the dialogue is crucial. How to do this without being too authoritarian is one of the great attributes of a successful chairman.
Controlling the dialogue and keeping the board focused on the questions the CEO has brought to the meeting is important from day one. A common trap many boards fall into is when the board attempts to micromanage the CEO. There is often a large degree of confusion between what is and is not supposed to happen at a board meeting. Typically deep financial planning, long-term strategy and overall hiring strategy are best addressed at yearly off-sites.
The initial composition of the board may not represent all the skill sets required to maximize shareholder value over the long run. It takes time to develop a fully effective board. Do not feel the need to fill all the allotted positions at the beginning, leave one or two slots open. Young companies evolve, and though you can always add or subtract board members, it is better to get a sense of what type of directors (especially independent ones) are needed. One of the hardest jobs is for the board to dismiss an otherwise accomplished and collegial board member. This is especially true if they are incompetent and the CEO has become "cozy" with them. The Lehman Brothers board debacle is a poster child for CEO and board collegiality causing devastation for shareholders.
Culture, chemistry and how boards control their meetings will become evident early on in a company's lifecycle. It is often getting much of this working right, beginning with the first board meeting, that will determine success or failure.
As we look to the future, evolving technologies are creating online "virtual board rooms," promising greater efficiency and cost savings. It is true that a meeting on the Internet in a controlled, interactive environment is often very efficient. But at least for now, the first board meeting -- like the first date -- is best done live.
Senyei, M.D., is co-founder and chairman of Genoptix. He is being honored as Director of the Year for Enhancement of Economic Value by the Corporate Directors Forum.
Nov. 20, 2009, 5 p.m. -- San Diego's web video news: Today's breaking major business events, economic, and financial announcements from the Daily Transcript/San Diego Source newsroom.
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