In the life of most companies with an active board of directors, it occasionally becomes necessary to recruit a new director. In the case of VC backed companies, a new director candidate is often the suggestion of one of the investors. In these cases, the suggestions are often the result of the VC in question having a past, successful working relationship with the proposed candidate. These candidates are often suitable in terms of “knowing the venture drill”, likely a cultural fit, and appropriately skilled for the challenges at hand. However, the relationship between the VC and the proposed candidate can often be seen as “too close.” Therefore, if independence is a highly ranked criteria for you, Jim Lejeal and I suggest you consider a more formal and deliberate process (and we humbly offer this as the latest post in our Board of Directors series.)

Before you start the process of recruiting a new director, consider the following:

• Manage the process with enthusiasm. A competent and enthusiastic new board member can re-energize an existing board. Use the process of inviting a new director to join the board as a chance to improve the leadership of your company.
• Perform the recruiting effort with care. Adding the wrong new director – just like hiring the wrong key employee – can result in a negative and costly outcome. Executing a carefully thought out process can increase the chances you will end up with a great new director for your company.
• Complete the recruiting effort in a timely manner. Adding a director is a serious affair and in our experience can help make good companies great. We’ve seen the process drawn out unnecessarily and take a back seat to all kinds of other activities. Treat recruiting a director just like recruiting a member of the executive team – do it quickly and take it seriously.

Now, let’s assume you are ready to begin recruiting a new director and your board has agreed to do this in a methodical way rather than just get “some friends or experienced execs we’ve worked with before” on the board. Following is a framework for running a process.

Determine who is responsible for running the process: Some companies like to have a formal nominating committee; others are happy to have the CEO work with one director to run the process. In most early stage companies, a combination of a CEO and one director is a great working group, recognizing that one of them ultimately has to take responsibility for getting it done. While “best practices of board governance” typically will put the responsibility on a director, the CEO is almost always heavily involved in early stage companies.

Perform a GAP analysis of your existing board: Begin by taking a look at your existing board and identify where your board’s skill set is strong and where it can be improved. Some key criteria that are often needed for growing companies include independence, financial expertise, and specific product, sales, or marketing skill sets. A great rolodex – especially for customer prospecting or future financing – is often nice to have, but should be not be the only thing you are looking for.

Establish and prioritize your selection criteria: The criteria you determine you need from your GAP analysis are unlikely to be equal in importance given the current state of your company and the nature of your existing board. Make sure you’ve got a handle on the critical capabilities, the nice to have ones, and the ones that don’t really matter much.

Work as a board to create a candidate pool: Engage all your directors in this as they are likely to be the best source of potential candidates. In addition, by getting everyone involved at this point, you’ll be able to confirm the capabilities you are looking for in your new director.

Approach at least three candidates simultaneously: Not everyone will be interested in the opportunity you’re offering. In addition, after the first meeting, you might not be interested in the candidate. By approaching a few candidates at the same time, you’ll benefit from being able to compare the candidates while hedging your bets in case a few of them aren’t interested (or interesting.)

Explain your process to each prospective board member: Be candid and upfront with each potential director that you talk to. Explain what you are looking for, why you are looking, and what your time frame and process is. Explain that the ultimate decision whether to invite the candidate onto the board is a shared decision of a company’s board and that a number of interviews need to be undertaken in order to actually extend an offer to join the board. Emphasize that the diligence process is a two-way street and that the candidate should feel comfortable performing their own diligence on the opportunity. Finally, explain that other candidates are being considered so there are no surprises.

Have more than one meetings: Make sure you spend enough time with each candidate that you are seriously considering. Get to know the person – just like you would with anyone that you would add to your leadership team.

Assist your candidates in their diligence process: Share information with the candidates to assist them in getting comfortable with your company and the opportunity to be a director. Make sure the candidates have good access to all other directors as well as members of the senior leadership team. Encourage everyone to be open – both about the good and the bad. Clearly explain your expectations of time commitment, board attendance, and compensation. If you are comfortable, share the last few board reports. Use this step in the process to understand more about the candidates you’re considering.

Schedule one-on-one meetings with at least a majority of your existing board members: All of your existing board members should have an opportunity to meet the candidates before an offer is extended. Often this isn’t practical, but make sure your existing board members’ expectations are well understood. As part of this step, consider doing reference checks on your candidates, especially if they are not known to all directors.

Observe the natural ranking your process creates: Running a parallel process of talking with more than one candidate simultaneously will give you the benefit of determining who is your top candidate. Collect feedback from other board members that have participated in the process to rank order your candidates.

Invite and Approve: By now you have run a comprehensive process and you are likely at a point where it’s clear who you’d like to have join the board. Typically the formal step of adding the board member is to invite them to their first board meeting where they will be formally added to the board by way of a voting action on the part of the existing board. Check with your attorney in advance on the most appropriate way to do this – especially if you have any specific voting provisions associated with appointing a new director.

Will Herman has an excellent post up titled Board Meetings – A CEO’s Point of View.  While I’ve never been on a board where Will was CEO, he and I have been on several boards together, and he’s an incredibly valuable and impactful board member.  His “top 11” list of suggestions is a must read for any CEO that has a board of directors.  Also – look for some new posts in the Board of Directors series that Jim Lejeal and I have been writing coming soon to a blog near you.

I go to a lot of board meetings.  As a result, I’ve reviewed a lot of board meeting minutes.  In general, the philosophy among most VC-backed companies – promulgated by the law firms for these companies – is to keep the board minutes “light.”  They should cover the substance of the meeting and have any specific votes, option grants, or board level issues documented, but they should not contain extensive details about the presentations giving in the board meeting.

I regularly get asked for “sample board meeting minutes”, especially among newly funded companies that are just starting to have board meetings and might not have their outside counsel present at the meeting (although most outside counsel’s that are credible and used to working with early stage companies will attend board meetings at no charge – just ask as part of your initial interview process with the firm – it’s very useful to them to be there so they can stay up to speed on what is happening at the company.)  Following is a template for a sample set of board meeting minutes.

———————————————————————————————-

[INSERT NAME OF COMPANY]

MINUTES OF A MEETING OF THE BOARD OF DIRECTORS

[Insert Date of Board Meeting]

A meeting of the Board of Directors (the “Board”) of [Insert name of company], a [Insert state of incorporation] corporation (the “Company”), was held on [Insert date of board meeting] ([Insert time zone—i.e. Mountain Daylight Time]) at the offices of the Company.

Directors Present:

[Insert names of directors present]

Also Present Were:

[Insert names of other people (mgmt., etc.) present]

Directors Absent:

[Insert names of directors absent]

Counsel Present:

[Insert names of legal counsel present]

NOTE: It’s generally good to note next to the above listing if the attendee(s) participated via telephone (otherwise it’s assumed they participated in person at the above referenced location]

Call to Order

[Insert name of CEO or board chair] called the meeting to order at [Insert start time of meeting] ([Insert time zone—i.e. Mountain Daylight Time]) and [Insert name of secretary] recorded the minutes. A quorum of directors was present, and the meeting, having been duly convened, was ready to proceed with business.

CEO Report

[Insert name of CEO] reviewed the agenda and welcomed everyone to the meeting. Next, [Insert name of CEO] discussed the current status of the company and its progress. A number of questions were asked and extensive discussion ensued.

Sales & Business Development Update

[Insert name] next provided an update on the overall sales progress and sales pipeline of the Company. He also presented the status of business development discussions.

* [Insert name] joined the meeting*

Financial Review

[Insert name] provided a comprehensive update on the Company’s financial plan and forecast. [Insert name] also reviewed the Company’s principal financial operating metrics. Discussion ensued.

Financial Planning

The Board next discussed the timing and creation of the 2007 Operating Plan.

Approval of Option Grants

[Insert name] presented to the Board a list of proposed options to be granted to Company employees [and advisors], for approval, whereupon motion duly made, seconded and unanimously adopted, the option grants were approved as presented in Exhibit A.

Approval of Minutes

[Insert name] presented to the Board the minutes of the [insert date of previous board meeting] meeting of the Board for approval, whereupon motion duly made, seconded and unanimously adopted, the minutes were approved as presented.

*Management was excused from the meeting *

Closed Session

The Board next discussed a number of strategic topics. Questions were asked and answered.

Adjournment

There being no further business to come before the meeting, the meeting was adjourned at [Insert time of adjournment] ([Insert time zone—i.e. Mountain Daylight Time]).

Respectfully submitted,

____________________________

[Insert name of secretary], Recording Secretary

NOTE: Create (and delete) additional headings and sections above as necessary to capture the major agenda items of the board meeting.

NOTE: If attendees join after the meeting start time or leave before the meeting adjournment, it’s preferable to note when they join and leave the meeting as indicated above by the asterisked notations.

Following are some board meeting rules that were recently presented to me and my fellow board members by a CEO at one of his first board meetings at a newly funded early stage company.  I thought they were brilliant.  Feel free to pass them out at your next board meeting.

Be supportive of the company: Tell us the things we do right and things we do wrong.  We are figuring this out as we go.  “No comment” is hard to interpret and our imaginations will run wild.

Be responsive to communications: Please ACK emails.  If you can’t respond when you read, set expectations when you can.  At least say “ack.” I’m generally on email all the time and it’s a real-time communications tool for me.

Be transparent: We have personal relationships around the table.  Management should not use board members as “agents.”  I don’t want any politics on the board – if I did I would still be going to board meetings from my last company.

Be specific and descriptive: I sit on a board also.  I know the temptation to speak in strategic generalities.  Please include concrete examples that smaller minds can digest.  I give extra credit for using more words.

Look for opportunities: You generally cast a much larger net than we do.

Look for early revenue opportunities: Making money will never go out of style.  Generally everything is easier with revenue.

Look for partnerships (Panda Mating): Early stage companies need help with partnerships largely because we don’t have any of particular value yet (like people, brand, data, and money.)

Look for dead-ends: No one wants to hit the wall at 120mph.  You’re more experienced so you should see the wall coming before we do.  Don’t grab the wheel – just tell us to look down the road.

Scott Converse – the CEO of ClickCaster – has a long and very personal post about his experience in the run up to his first board meeting.  I’m sure he’ll have a follow up post after the meeting today.  If you are a first time entrepreneur who has just raised money, or are just starting to have board meetings, Scott’s perspective will be additive to your world view.

As Jim and I continue our Board Meeting series, we’ve decided to address a question that we are often asked – “How Many Board Meetings Should A VC-backed company have?”

Our general answer is “as many as you should for the stage of the company that you are.” We define stage loosely, where you evaluate the company’s revenue performance, the rate of growth of revenue, the headcount of the company, and the strategic issues the company faces. If you – dear reader – are a rational person – you should be responding with the thought “thanks guys – not helpful.” Stay with us – we’ll try to be more prescriptive, but – having been involved in lots of companies, with lots of different boards (and board dynamics) – we know there is no simple and correct answer.

Our experience suggests a private, venture-backed company should have between 8 and 12 meetings a year, with at least half of them face to face. As a company grows and matures, the number of in person meetings will logically decrease, but should never fall below one each quarter, preferably in the first month of the quarter so the performance of the previous quarter can be reviewed while it is still fresh and current.

If you’ve just closed your first round and it was a seed or Series A financing, expect that you will likely to have monthly board meetings. Yep – you heard us – expect to have 12 meetings per year – and it’s best if these are in person. Try to have your meetings set up on some recurring monthly basis like “the third Thursday of every month”. This helps schedule the board and increases the likelihood that board members can actually attend in person. Also, a monthly meeting which shifts from month to month (for example – the third week one month and the second week in another) may not allow enough time to elapse in between meetings.

Your early stage investors and board members will want to be (and you should want them to be) actively engaged in the company. You’ll be dealing with a huge range of issues in the startup phase – frequent, substantive, and open discussions will help keep all the board members up to speed on what is going on and engaged in the decision making process. Since a lot of significant events transpire at a rapid pace in a company at this stage, these regular meetings help the board maintain a level of awareness that enables them to engage in the activity of the company. In addition, a young board needs to learn how to work together – the best way to do this is “to work together” – regular meetings will reinforce this.

Additionally, CEO’s of venture backed companies (or any company with a board of directors) should expect to have fluid and candid dialog with board members in between meetings. Board member styles differ – some (like me) are email guys, some are face to face types, and some are phone call update types. We recommend understanding how each of your board members works best and make sure you spend time with them in between board meetings discussing issues, updating them on the business, and learning how to work together.

Some of this is preparation for later in the life of a company when a board has to make critical and substantial decisions, whether around a financing or M&A event, major change in the direction of the business, leadership change, legal issue, or something else that requires hard discussions. Spending time building working relationships, learning how each other think, work, and act, and developing personal rapport early in the life of the company helps makes dealing with these situations a lot more effective.

Some entrepreneurs have resistance to this level of oversight. If you’re someone who has a negative reaction (e.g. “12 meetings a year – no way!”) we encourage you to re-think your interest in a pursuing a model to build your business that includes venture capital, or for that matter your interest in having a board of directors.

Finally, while it is common that as a company matures, it will reduce the frequency of formal meetings (to say 6 meetings per year), the board will encounter periods of time where they will meet more often then once a month. This can happen when a company is approaching the end of a fund-raising cycle or during key times in the company’s life where substantive strategic actions are being managed (for example – an acquisition.) During these critical times it is common for a board to have formal – but short duration – meetings, both in person and over the phone.

Pascal Levensohn – the founder of Levensohn Venture Partners – wrote a comment to my post title The Agenda (in the Board of Directors series) that I wanted to promote to a full post (since I expect only some of you read comments.)  Pascal linked to a presentation he used to moderate a panel on Best Practices for Running a Board Meeting.  Excellent stuff.

The Agenda. This little one page document sets the tone, pace, and content of your board meeting. It’s fundamental to the success of a board meeting, so you’d think it wouldn’t be as screwed up as often as it is. As Jim Lejeal and I continue our Board of Directors series , we thought we tackle this subject next.

Once you’ve attended a number of board meetings, we expect you’ll reach the conclusion that a good agenda can make a big difference in the quality of a board meeting. The most common mistake is that there isn’t an agenda; the second most common mistake is that when there is an agenda, it’s not followed. We’ve found the latter to be the more pervasive – it’s easy to put together a boilerplate agenda and use the same one meeting after meeting, but the board meeting itself covers a different set of issues and travels down a path that would cause an observer of the meeting to think the agenda and the meeting existed in parallel universes.

A good agenda is one page long, has each topic clearly articulated, and lists the length of time expected for the topic and the person responsible for leading the discussion. There should be no surprises in the board meeting – the agenda should be clear about what is being covered.

We suggest that – as a starting point – you destroy the boilerplate agenda that your law firm gave you and start from scratch. Ask a few of your board members for sample “good agendas” from other boards meetings for boards that they think run well. Use this as a background, but create an agenda that is specific to your board meeting. Create a new agenda for each board meeting – don’t fall in the rut of copying the last meeting’s agenda.

Order the agenda so that the topics that are the most important to address in the meeting are covered first. A common mistake is to save the important topics for the end of the meeting. This is often done to facilitate a closed session of the board to address these topics. However, board members often have time constraints (other meetings, planes to catch) where they have to leave around the time your board meeting is scheduled to end. By putting the important issues last, you run the risk of having half your board leave mid discussion of the company’s pressing issue – or worse – you unneccesarily rush through the issue, raising the risk that the issue at hand isn’t properly vetted or understood by your board.

Circulate the agenda to your board in advance and get feedback that you’re covering topics that you and your board feel ought to be discussed. If your board has a Chairman or a lead director, enlist him to help you with this. A side note to all you frustrated board members out there who feel that management doesn’t cover the pressing issues you’d like to see covered in your board meetings: an agenda circulated in advance of the meeting is your opportunity to schedule the topics you’d like to see addressed.

Assign time blocks to each item that are reasonable allocations of the meeting time. Stick to the time constraints. If your board culture is to involve members of management in the board meeting, review the agenda with your team and discuss the time constraints in advance. It’s frustrating when a discussion on say – Marketing – that is assigned 10 minutes (often 9 minutes more than is necessary) is allowed to consume 45 minutes of your meeting. Schedule breaks and stick to the allocated time.

Don’t simply copy the flow of your board report on your agenda and spend your board meeting talking about what you’ve already delivered to your board in written format. While portions of your report deserve discussion in your meeting, performing a page-flip-read-and-review of your written report is a huge waste of time (and nauseating to your board members that can actually read.) Presumably your board has already thoroughly read your board report (if you don’t think they have, make sure you’ve set the expectation that you expect them to do this) – they don’t need you to re-read it to them in your meeting. Give your board time to ask questions and discuss any issues in each operating area of the business, using the written text as a backdrop.

With respect to the financials, you should ignore what we just said above. A financial review should be performed at every meeting along with a page-flip-read-and-review of the primary financial statements regardless of how well your board has studied the financials in advance of the meeting.

Make sure that you’ve allocated time for your voting issues and identify what these items are in the agenda to ensure you vote on all of them.

Finally, pay attention to the silly little details. Include the time and date for the meeting on the agenda. If you have the potential for board or management team members to call in, including the dial up number (if it’s a toll free number, include a local number for the board members calling in internationally.) Include the contact info for someone at the company that can assist any board member with directions or logistics in case they have difficulty getting to the meeting or dialing in. Include information for meals if you are having them.

When we started this point, we talked about a “good agenda.” Your board agenda doesn’t have to be “great” – “good” is fine. However, a “good” agenda can help you with the ultimate goal – that of a great board meeting.

I expect The Chairman post I just put up will be controversial.  If you have a different perspective, or a bad experience with a board that has a chairman, please feel free to weigh in.

Also – I’m still thrashing around a little with Writely and its blog posting feature, so if you got two copies of the post in your feed (one starting with the title “Rob Shurtleff – a”, please ignore that one – the correct post is “Board of Directors: The Chairman.”

And – no – not all of the boards I sit on have a Chairman.

Rob Shurtleff – a VC in Seattle with Divergent Ventures – whom I’ve gotten to know over the past year, dropped me a note with some ideas about a few posts in the Board of Directors series that Jim Lejeal and I have started writing. The first topic Rob suggested has evolved into the a post titled “The Chairman”. Through the magic of Writely, I’ve involved him into a group edit on this post – what has resulted is a collaboration between the three of us.

In the public company arena, more and more companies are separating the Chairman of the Board position from the CEO. It turns out that this trend has benefits for earlier stage companies too. We believe that all CEOs – regardless of their experience – benefit from having a lead director on the board. In general, it has been our experience that boards (and the board meetings) work better when there is a Chairman in charge other then the CEO.

Some specific roles for the the Chairman follow:

• Collects input from all directors and management on the board agenda – this facilitates surfacing difficult issues.
• Creates the board meeting agenda with the CEO.
• Runs the agenda of the board meeting, holding items to schedule or extending the time spent on them if the consensus is to spend more then the appointed time on an item. This frees the CEO to focus on content and allows the Chairman to keep the meeting on track.
• Hosts an executive session without management at the end of the meeting in order to gather feedback, surface issues, and frame constructive feedback for the CEO and the management team.
• Reports any relevant feedback to the CEO.
• Collects input from the board and from the senior management team for the CEO’s annual review, writes the review, presents it to the board for approval, works with the compensation committee on CEO bonus and changes in compensation, and finally meets with the CEO in a formal performance review.
• Heads the search committee when hiring a new CEO.

In addition to being a focal point for the board, The Chairman can also be a critical mentor for the CEO. As a result, he should be a consensus choice of both the board members and the CEO. In addition, the Chairman should be a person who is made visible inside the company – such as attending and participating in all hands company meetings. The Chairman should make themselves easily available to employees (via in person, email, or phone) at any time. If bad things are happening within the company (e.g. date manipulation of stock options) employees should have a person on the board – namely the Chairman – that they are comfortable going to with any issues.

Some of the CEOs we have worked with have resisted this idea. Most have come to see it as a big plus. We’ve also found that – in most cases – boards also benefit from having a lead director as a focal point.