Dining last night on the best tuna tartare around, an entrepreneur asked me my thoughts on board structure. My answer surprised him, prompting his suggestion that I share it in a blog post. So here goes: Crafting the right board of directors has nothing to do with legal structure, and everything to do with getting the right people in the room.
I find that the ideal board of directors has 5 members--a nice, small odd number that allows for multiple skill sets without losing anyone's attention or complicating communications. The CEO is the only employee on the board, so that open, apolitical conversation can ensue regarding the team. VC's occupy no more than two of the seats--more than that yields rapidly diminshing returns (and fuels the conspiracy nuts who blame all setbacks on evil VC control). The remaining seats are held by outside experts recruited opportunistically--the board should regularly consider skill sets and credentials that would add value to the board (contacts, reputation, domain knowledge, customer perspective, CEO coaching experience...) and keep all eyes open for the right individuals who inevitably pop up.
For the record, my "ideal configuration" is a guideline, not a rule. Historical constraints commonly require deviation, which I have often seen work just fine.
Here's the surprising part... I don't care who elects whom, how many seats the common shareholders elect, or whether I even hold a formal board seat. Ask any entrepreneur I work with--Bart, Chini, Scott, Messiana, Risley--and they will confirm that I'm 100% easy on control terms, because I have learned from experience on 40+ boards that they don't matter. Real control has nothing to do with the documents, and everything to do with the color of the ink at the bottom of the cash flow statement. Simply put, when a private company is losing money, the investors control it, and when it's profitable, control rests in the CEO's hands--unresolvable differences between the CEO and investor group inevitably pan out this way. It's simply a matter of which is more dispensible at the time--the financial support of the venture firms, or the knowledge and momentum that the executive team brings to operations.
So as you can imagine, I'm always quite happy the day I truly cede control of the board!
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