Paul Clark is senior vice president of mergers and acquisitions at CertusBank in Greenville, a director of the South Carolina Angel Network, an amateur angel investor, and (thanks to this workshop) now has a chance of adding some value to companies.
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Do boards of directors matter? Do they contribute to better share price performance for public companies, to greater shareholder value and sustainability for private companies, and to faster growth for startups?
The financial press thinks so: Few announcements bring better publicity to a startup than having a venture capital superstar joining its board. Politicians and regulators agree, though perhaps for different reasons: If only certain levels of board accountability, legal liability, female representation, or diversity of background and skills are achieved, they argue, businesses avoid becoming Enron, Lehman Brothers or one of the countless smaller companies you never hear of because they quietly failed long ago.
The success of board regulation remains to be proven. What is certain, though, is that the people who attended UCAN’s recent “Navigating the Boardroom” seminar are now better equipped to contribute positively to the success of companies they assist. Provided by the Angel Resource Institute, the workshop was for existing directors wanting to improve the impact of their advice, anyone interested in becoming a director, and entrepreneurs hoping to improve the value of their boards.
The nearly 40 participants were treated to a comprehensive education from John May, chairman emeritus of the Angel Capital Association. May has extensive experience as an angel investor network organizer – he has founded five different angel groups over the last 20 years, including Investors Circle, one of the most iconic early-stage investing groups – and investor and board member. His insights into the challenges and opportunities of board membership in early-stage companies are therefore impressively broad and of great practical benefit.
Lessons on the basics came quickly for everyone. How should you structure a board of a small business? Ideally, five people: two from the management team, two appointed by investors, and one entirely independent director. What should a board do? Supervise, mentor and if necessary replace the CEO; and never run out of cash. How should they be paid? Ideally, share options for one percent of the company each, to align their incentives towards company growth but prudent risk management, and to compensate for a major time commitment.
Potential board members received valuable insights on what to consider before taking a position. The potential downsides are obvious: a waste of time, effort and money; risk of ruining your reputation; and legal liabilities if things go wrong (as, for startup companies, they easily could). The upsides are considerably greater: the satisfaction of helping a company grow from an idea to a success; the intellectual stimulation of solving problems; and, hopefully, job and wealth creation for everyone involved.
Existing board members spent an uncomfortable time understanding where claims arise against them if they fail in their duties of care, loyalty and cash management supervision. Key lesson: Ensure the company you are helping buys Directors and Officers insurance, or resign from the board immediately. Not joking: Check into this before you turn the page.
More enjoyable was understanding the corporate events where boards should add the most value, but often do not: finding the next round of funding (a perennial problem for startups in our region); evaluating offers from venture capital firms or responding to “indications of interest” from potential acquirers; and selecting appropriate investment banks to maximize exit proceeds.
Business owners learned much, too. Boards of directors are not supposed to crush your freedom or entrepreneurial spirit. They should be mentors, sounding boards and facilitators of relationships. For first-time entrepreneurs, your board can be almost as important as your idea. Good board members bring expertise in all areas of your business that can be invaluable as you grow. Introducing you to customers, suppliers, sources of financing, and strategic partners can be the difference between having a successful business – and not.
The seminar was organized and run by UCAN, the Upstate’s network of accredited investors that fund early-stage companies in our region. Attendees from UCAN found practical lessons to implement immediately in their personal and portfolio companies. The session was hosted by the Clemson MBAE program in its new downtown Greenville location at ONE, and was sponsored by Elliott Davis and Wyche, two of Greenville’s most entrepreneurial companies.
All involved agreed they recommend anyone interested in helping businesses to be more involved on boards. Whether you are an entrepreneur, a retiree, an investor or a business line manager in an established, stable company, your contacts and experience could be exactly what a startup needs. Get involved – and, who knows, perhaps you can help create the next Nest?
