Situation: A company wants to recruit outside members to its Board of Directors. Currently, all Board members are founders except for a single early investor. How do you recruit outside Board members?
Advice from the CEOs:
- Board Member selection is a strategic matter. You want to have people on your Board who have done what you want to do strategically with the company.
- A Board does not run the company. Board Members provide input and perspective to help the CEO make better choices while running the company.
- Board Members have fiduciary responsibility – to the Shareholders, the government (to assure that the company is being run legally), to customers, to employees, and to vendors. Their role is to assure that the company does what it says it plans to do.
- How affordable are Board Members?
- Stock options are very feasible if you have little cash to pay salaries. Much will have to do with the prospective member’s buying into your vision.
- You will need to secure Directors and Officers Insurance for Board Members – $3K+ per year per member.
- The rationale behind payment in stock is for Board Members to have the same incentives for company success as shareholders.
- Target remuneration of Board Members is, for a pre-IPO company $100K per year if the company is successful, but if not then $100K over 5 years. Members of the Audit Committee are generally paid about double what other Board Members receive.
- Is there a downside of having numerous minor shareholders?
- Not really, except perhaps nuisance. You run the company. As long as you retain majority share ownership, Board members can only advise.
- Sitting on another Board is one of the best ways to improve your own abilities as CEO. Advising another CEO on how to run their company is a learning experience.
Special thanks for input on this topic to Bill Rusher, founder of Rusher, Loscavio and LoPresto.Tweet