As the Twig is Bent

Virgil said, “As the twig is bent so is the tree inclined”, just one of his many catchy phrases that achieved proverb status. Its essential wisdom has been the subject of everything from books to stage plays to human research, and I am borrowing it for the title of a few words on creating a company's first board of directors.

This site is primarily for those involved in smaller organizations but the task of drafting a one-size-fits-all profile for the directors of emerging companies is as impossible as it is for any of the others. That said, there are essentials — not the “nice to have” qualities, but the prerequisites for everyone on the board — that are nowhere more important than for those on boards where resources might not be as plentiful or as deep, while simultaneously the company's size or its earlier stage of development mean more risk and shortened time horizons. I believe that there are fundamental preconditions for all directors and only after that should the situation dictate the specific competencies. Combine the thought in the title with the concept of ‘tone at the top” and the act of choosing the board for a start-up garners the status of an essential while simultaneously knotting the brow of those addressing the task.

In a start-up, that probably means the founders of the company. One or more people form a company to capitalise on a technology, or a license, or some other basis for starting a business in the expectation of making money. Almost without exception those founders are the very first directors, those designated at incorporation. As the new venture grows and matures a larger, more diverse board is indicated and that begs the question: how to choose that initial slate, the one that follows those designated in the articles of incorporation. There is a tendency for many founders to turn to friends, or family, or early investors as potential directors, and that could be effective if, and it is a big “IF”, those individuals also have the competencies needed to help drive growth and create a sustainable business. Since the founders may still be the major shareholders, perhaps the sole shareholders, there is a tendency to wish to “control the board”, which is their right. The price is that others brought to the table by such thinking are unlikely to provide much objectivity or fresh insight, that is, they will not truly be worth their fees.

It is tempting – and an all-too-common practice – to give the task of choosing those first outside directors very little time and attention. A quick conversation, perhaps during a coffee break, suggests the names of several friends and those few plus the founders become the board. If criteria to choose the new directors are considered at all they are likely to reflect those chosen, a sort of self-fulfilling prophecy, rather than deliberate, business oriented parameters. The practical implications of bending the twig in this manner may materialise only after months or even years. The president of the company is likely the voice of the founders, perhaps the largest shareholder, and it is likely the wisdom of this individual that will think about the whole tree and thus its branches.

For the thoughtful, selecting a director may be considered in three layers or sets of choice criteria. First, the prerequisites for someone to be considered are easy to define, although sometimes difficult to find. Next is the coreof personal traits or characteristics that form the personality of the board. Finally there is a third layer, which is specific to the situation and the reason that there are at least as many director profiles as there are boards. A future article will describe the use of a competency matrix as a way to create a selection process that can be repeated in the future. Note that the word competency is a “non-denominational” collective for all traits, characteristics, skills, experiences or whatever that might distinguish one person during selection. The first set of competencies, the table stakes if you will, include such qualities as integrity, wisdom and financial literacy. If you doubt the full measure of any of these attributes you can save time and go on to the next prospect.

A pre-requisite that should never be ignored, most especially in a start-up, is discretionary time and the willingness to spend it as a director of the company in question. Good governance takes time and a new company is needy. Directors will be involved in multiple ways as they veer across the white line between governance and management, apportioning their time as needed because a director's role in a new business will include everything from confidant and mentor to a stand-in for management. For example, a candidate with audit committee qualifications might well act as the de facto CFO and supervise a bookkeeper for the first few months of a new company, gradually withdrawing from that role as the business is able to afford a full-time chief financial officer. Similarly, the directors of a start-up might consider using their contact directories to open doors to customers, suppliers, distributors, strategic alliances and financing.

It is for this reason that you should question prospective directors closely about their discretionary time prior to asking for their commitment to the board. Make no mistake, being a director is not an honorary role and having time that can be allocated exclusively is a basic criteria. Moreover, since director fees at this stage are likely to be small and paid in options, you should consider only those who have sufficient interest in the company and its sector that their attachment acts as at least part of the reward for assuming the obligation

As you turn to the core competencies it is useful to think of the group of people called a board of directors as a body politic, with the collective characteristics of its members as the competencies of the board as a whole. This will ease the selection task a little, because it is not necessary to find a super hero. If you can find two or three of the core competencies in each person you can aggregate the desired board persona. You will have your own set of core competencies but here are my choices:

1. Consensus builders are invaluable. Their gift is close to being essential, but perhaps it is not needed inevery director. Consensus builders lead or smooth the process that not only seeks the agreement of most participants, but attempts to resolve or mitigate the objections of the minority to achieve the most agreeable decision. It is difficult to discern this competency in advance, but if you can get insights from other situations, and the prospective director has the happy knack of helping a group to reach common ground, do whatever you must to recruit her or him to your board. By the way, consensus builder moves from “nice to have” in a director to essential in the board chair.
2. Creativity will support the board's role in corporate strategy, either as a contributor while strategy is developed or as one who “gets it” when management presents the strategic plan for board approval. The director who consistently generates new ideas or concepts, or who can discern new associations between the ideas or concepts that we have at hand, is a treasure on a board.
3. Breadth of knowledge ranks high on my list because I believe that those who have a comprehensive view of the world are likely to have the faculty to place issues in their context more readily than those with a narrower base of knowledge and understanding. Perhaps because my original education was as an engineer — i.e., straitjacket narrow — I quickly came to appreciate a more eclectic preparation. It seemed to lead to an understanding of issues, whereas this newly graduated engineer was ill-prepared. We need not find the fabled “renaissance” scope of knowledge in every director, but more is better.
4. High personal standards help to set the tone at the top. Directors ought to be exemplars, a possibility only when they are chosen because they set strong standards of performance and then meet them. The directors are more visible than they realise, especially in smaller organizations, and their performance, good, bad or indifferent, is only too plain for all to see. Further, a board is like any small team, each must play a part and play it well, or the responsibility remains unfulfilled and that will shortly erode the team concept.
5. Interpersonal skills are like the spoonful of sugar in the old song, they ease the way for thorny issues. Respect, good manners and a positive outlook combine into someone that we enjoy working with, where we would prefer to avoid the difficult individuals in our midst. Resolving the tough issues before a board demands a lot; it should not include resorting to a lengthy string of deleted expletives.
6. An appreciation of governance completes my list of core competencies, and its appearance as the last entry is intended to emphasize rather than detract. Small companies are often lead by an owner-operator who has little interest beyond satisfying the legal minimum. Governance is seen as an obstacle, something of a nuisance, to be taken in small doses if it cannot be avoided. That mentality is a burden to the board and a risk to the company; it is certainly something to be avoided.

There could be more – or fewer – core competencies, and the key to selecting them is the desired personality of the future board. Once the slate is in place you are ready to address the third layer of competencies, which is situational and hence dependent. The following profile of a director emerges.

The chart suggests four situational competencies: two types of experience plus knowledge and skill. There could be many more, of course, and you will likely define each in a way that is also specific to your company, its stage of development, its market or sector and so forth.. The right hand-side of the chart should be driven by the company's business and strategic plans, with their implications arrayed against the current directors in a matrix, so that needs become obvious and meeting them is a priority.

In summary, bend the twig carefully – and quite deliberately – with much consideration for the company, its plans and its prospects.