A private equity approach to building a strong board: based on our experience in working with hundreds of management teams, here are six key strategies for fast-growing companies to create the optimal board.

• Author: Roberts, Tom
• Position: BOARD COMPOSITION

INDEPENDENT BOARDS can help companies at nearly every stage of development, as they provide a broader perspective, additional expertise, and critical fiduciary oversight. These boards are particularly important for companies in fast-changing industries, where there is a need to quickly understand and capitalize on opportunities.

An independent board can also help raise governance practices to the standards required for a company to complete a successful initial public offering or to be acquired by a larger public company. And yet, building an independent board can be stressful for founders and company owners, since it involves giving up a portion of control to outside independent directors.

The board's main functions are twofold: to debate and set company strategy, and to support and monitor the chief executive officer. All other functions--including audit and compensation reviews, strategic advice, and guidance during periods of crisis--flow from those two primary functions. While having a board can be invaluable, company managers must carefully consider what kind of directors can effectively fulfill these two critical functions.

Starting from scratch ... or from an existing board

Not every company begins the process of building a board from zero, but relatively few private companies have truly independent boards. In some cases, a company may have no board at all, while in other situations, the company may have an ad hoc management committee that meets informally to discuss business strategy. These individuals are usually long-term employees who are familiar with the company's strategy and history, but who sometimes have a limited perspective on other industries or geographies.

Many companies have boards that are composed of spouses, children, relatives, and friends. Because of their close relationship to the CEO or founder, these capable people may find it difficult to speak with absolute candor.

In over two decades, Summit Partners has assisted more than 290 growing companies build boards, helping them to successfully transition from small, closely held companies to more substantial firms ready for an IPO or a strategic acquisition. Here are six key strategies we use to help fast-growing companies create the optimal board.

1. Make sure your board evolves to reflect your company's growth

   When making the transition to a more sophisticated board, the challenge is to preserve your company's culture and history while adding fresh expertise and insight. As your business grows, your longest-tenured advisers may not have the expertise to guide you; if you keep them on while adding outsiders, your board may grow to be unmanageable.

   The ideal size for a growing company's board ranges from five to nine directors--large enough to access the additional experience and perspective you need, while small enough to stay mobile and focused. We also recommend that you establish, as early as possible, board terms of approximately three years. That way, there...