The Role of the Board in the Entrepreneurial Firm

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The Role of the Board in the Entrepreneurial Firm

• Dr. Alan L. Carsrud
• The Pino Global Entrepreneurship Center
• FLORIDA INTERNATIONAL UNIVERSITY
• Based on the work of Dr. Neil Churchill, Dr.
  Alfred Osborne, and the UCLA Director Training
  Program

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TYPES OF FIRMS

• Public
• Private (Closely-held)
• Family (Can be private or public)
• Entrepreneurial
• Private
• Family
• Classic high growth

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Stages of Classic Entrepreneurial Development

• Pre-funding
• Concept/development stage
• Post-funding
• Market test/strategy reset
• Growth/team building/IPO
• Early exit or build to maturity

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Entrepreneurial Firms Need Boards

• Broad perspective
• Less lonely at the top
• Support in rough times
• Longer term focus
• Resource mobilization and assistance (think
  bigger networks)

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Board Types
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Board Types
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Advisory Board Value

• Star names for recruitment, sales, and/or
  investment
• Contacts, contacts, contacts, contacts,
• i.e. -networks
• Mentoring
• Funding - as investor, asset

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Being a Director in an Entrepreneurial Firm

• Investment opportunities
• Relationships with other board members
• Window on areas of interest
• Do it again - vicariously
• Compensation, Recognition
• Impact Shareholder Value
• Content Learning Experience

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Best Practices for Boards
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Personal Characteristics

• Intergrity and accountability
• Informed judgement
• Sufficient information
• Written
• Have expert input
• Financial literacy
• High performance standards
• Communication sensitivity

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Areas of Board Focus

• Enhance shareholder value
• Select, evaluate compensate top management
• Ensure management succession
• Positioning and metrics
• Monitor and critique strategic direction

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Areas of Board Focus

• Advise senior management
• Approve, monitor, and review appropriate policies
• Create a climate of full disclosure
• Establish ethical standards and legal behavior
• Monitor and critique operational and financial
  plans

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Core Competencies of a Board

• Informed business judgement
• Management expertise
• Strategic vision
• Industry knowledge
• Accounting and financial skills
• Superior communication skills

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Board Effectiveness

• Tailored to needs of firm and board
• Regularly reviewed and adjusted
• Aligned with company goals
• Equity ownership
• Agenda setting

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Director Effectiveness

• Selection
• Role
• Knowledge development
• Companys business and culture
• Industry
• Board
• Self-evaluation

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Strategic Planning

• Challenge managements strategy
• Management capitalizes on boards diversity and
  independence
• Management sets direction
• Board provides input on decision process
• Board ensures the appropriate process is followed

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Succession Planning

• Finding the right leader at the right time
• Board-directed, collaborative process
• Continuous, explicit process
• Driven by corporate strategy

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Evaluation of the CEO

• Process, not an event
• Job descriptions
• Performance objectives
• Performance measures
• Performance standards

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Purpose for an Entrepreneurial Board

• Potential investor / asset
• Crisis management
• Network of contacts
• Conflict resolution
• Removing obstacles to success
• Emotional support to the CEO

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Recruiting and Retaining an Entrepreneurial Board

• Aim High
• Wide Net
• Extensive pre-director interaction chemistry
• Reference checks
• Written understanding
• Educate
• Evaluate

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Operational Impact of an Entrepreneurial Board

• Fund-raising
• Recruitment
• Marketing and Sales
• Go to market strategy
• Rapid product development
• Counseling founders
• transition issues
• company life cycles
• exit strategies

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Ideal Early Stage Board

• Three Members
• Founder
• Two Strong, independent directors who command
  respect of CEO and founding team
• Sufficient experience
• Economic stake
• Able to work the line between
• Close confidant of CEO
• Maintaining objectivity as fiduciary all
  shareholders

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Duties Responsibilities of Directors

• Charter and By-law requirements
• Business and affairs of every corporationshall
  be managed by or under a board of directors.
  DGCL 141 (a)
• Formally select and supervise corporate offices,
  oversight, investigation, reliance on records and
  disclosure
• Duty of Loyalty

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Fiduciary - Duty of Care

• Act in good faith
• with the care an ordinary prudent person in a
  like position would exercise under similar
  circumstances
• in a manner believed to be in the best interests
  of the corporation

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Fiduciary - Business Judgement Rule

• Created to protect directors from personal
  liability for mistakes in judgement
• Directors decisions respected if made
• by disinterested and independent directors
• with requisite due care
• reasonably attributed to a rational business
  purpose
• unless fraud, conflicts of interest, breeches of
  duty of loyalty
• Informed decision

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Director Liability

• Establishing the propriety of board deliberations
  and actions
• Maintaining corporate minutes
• Board should record evidence that it has acted in
  a deliberate and knowledgeable way
• Keep the corporate light under a bushel basket