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Does Your Board Give You Good Advice?

By: Dave Berkus

 

Does Your Board Give You Good Advice

This may be news, but boards of directors can offer bad advice. Having served on more than forty boards, I’ve seen such a variety of good and bad advice that my stories could fill a book. (oh, wait. They have…) So, lets delve into board composition, risk of an unbalanced board, and one of those stories…

The composition of your board matters

A typical board is composed of five persons in a company that has received outside funds from professional investors. Two members usually represent the founders or management, two are from the investors, and one is often elected by the four to represent the industry in which the company works.

The financial investors typically have deep experience running companies, often in other industries. The fifth board member often is an expert, but not an executive with operational experience. Realizing that this description is a generalization that fits some, but not all, growing firms, the dynamics of the board are a key component in the effectiveness of advice and leadership given by the board.

Do you defer to those outside board members?

It is not uncommon for the founders or executives on a board to defer to the three outside board members, responding to questions and defending previous actions. All this is proper to the extent that the two founders or executives do not leave their brains at the door when attending a board meeting, acceding to the suggestions of board members as if each were a direction or order.

My story of an unbalanced board and influence

I still recall vividly the board of a young company that was composed of the entrepreneur and four investors, each of whom had differing thoughts on how to use resources to grow the company, giving mixed signals to the entrepreneur who wanted greatly to please each and all. That company embarked upon an expansion drive before perfecting the operation in its first city, as a result of the board’s direction to the entrepreneur, which was against his better judgment although he remained relatively quiet and certainly compliant.

“The board knows best” is not always true. And in this case, the company over-expanded, did not have the resources to fix problems at its new remote offices, and died a slow death from issues of control and quality, all of which might have been mitigated had the company spent more time debugging the first-city operation.

Published: September 13, 2019
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Source: Berkonomics

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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