Start-up to Exit: Role of the Board

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As a company progresses from early stage through growth to some sort of an exit (acquisition, IPO), the role of the Board must change so as to provide requisite skill sets to match the needs for these different company stages.

This was the primary take-away from the National Association of Corporate Directors-New England’s February 14 Boston Breakfast Meeting, which offered a panel of entrepreneurs who are leading growth companies (all of which had an IPO).

A typical trajectory for company expansion was identified:

First, a formative stage where the Board must lead the development of the technology and proving the business model.

Second, various stages of financing through growth mode and thereafter often an expansion through M&A.

Third, many companies themselves go public or are acquired.

Management must guide the evolution of the Board, identifying the particular needs at each stage, and easing people off and on the Board as appropriate.

Many emerging companies combine the chairmanship with the CEO role, which is not thought to be best practice. Indeed, in Europe, this is viewed as an inherent conflict of interest. Panelists noted that a strong, independent lead director is a counterbalance to the tensions created by the same person serving at the top of the company and of its supervising Board.

Aside from orchestrating the composition of the Board, CEOs must make sure that everyone is reasonably aligned; this means management and the Board but it also means dealing with the investors. There are particular tensions where early investors are looking for an exit while later investors tend to have a longer-term strategy. Does this mean the Board must always be thinking about exit, or sale? One panelist replied in the affirmative; you must look at the one, three and five year projections for your business, in terms of growth and business cycles; a sale, if not an overwhelming imperative, is always an option to be kept in mind.

A question from the floor asked whether Boards need to include someone adept at cyber security issues. While the panelists believed this was a growing trend and that cyber security was very important, growing companies have so many Board needs to fill and so few slots that, at least at an early stage, including someone with cyber capabilities is not the general practice. It was suggested that the company can have a series of advisory boards, one of which typically may be involved in the company’s science or business, but one could also be directed toward IT and cyber security issues.

Finally, what about founders? They generally were described as short on patience, and don’t want to stick around awaiting a liquidity event. There is sometimes tension as founders, moved aside into advisory or technical roles, may undermine the growth-oriented and exit-oriented management teams. How to you move a recalcitrant founder aside?

The consensus: very carefully.


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