Leveraging your board to gain an edge.

• Author: Dean, John
• Position: Effective board composition and dynamics

'The desired future of the company should be represented by the board today'...and other insights for early-stage companies on effective board composition and dynamics.

The rapid growth rate of venture-backed companies makes it exceedingly difficult yet increasingly important to build and maintain a company s team, which includes the board. That team must grow and change as the company matures. To address some of the challenges emerging companies face, we hosted a conference for senior executives of early-stage companies in which we brought them together with several leading thinkers on governance leadership. In this article we distill some of their wisdom on effective board practices.

Many well-established public companies have gone through a "governance phase" in order to strengthen the structural elements of their boards. A number of venture-backed companies are following the "best practices" of some of these restructured companies, to varying degrees. An exciting new phase that has the potential to create an even greater impact on governance is gaining momentum. This "enrichment phase" is one in which companies are raising the bar for board performance, improving the overall quality of their directors, and attempting to deal with issues of substance rather than form.

Even smart CEOs can benefit from board counsel, and the brightest ones seek out help from their boards. Boards need skills, not just titles. At Boardroom Consultants, our clients are less insistent on only considering active CEOs for their boards. When we ask new clients to describe their best director, it is often not an active CEO. More and more frequently, they mention a vice chairman or chief financial officer of another company, or a retired senior officer from a related industry. In other words, many companies are beginning to realize that they have been too limited with regard to the experience they have been seeking for their boards.

Now here is what our panel of experts had to say.

Henry Wendt: Hazardous Transition

Henry Wendt, the principal architect of the successful merger creating SmithKline Beecham in 1989, is now the chairman of Global Health Care Partners, a unit of Donaldson Lufkin & Jenrette that specializes in private equity investments in health care businesses worldwide. Wendt is also an advisory director of Boardroom Consultants and serves on the boards of The Egypt Investment Co., West Marine Products, a manufacturer and marketer of boating equipment and supplies, and Wilson Greatbatch, a manufacturer of batteries for medical devices. He is the author of Global Embrace, a book on the role of transnational corporations in the global economy published by Harper Business in 1993. He currently divides his time between New York and his winery, Quivira Vineyards, in Northern California.

"The transition from a venture capital-backed emerging company into a publicly owned company is fraught with extreme hazards," Wendt warns. "I believe that many of the good things that happen to companies and almost all of the bad things really emanate from the boardroom. The composition and nature of the board are crucial determinants in a company's long-term success. The size and quality of the membership are also very important."

At one time, Wendt believed that a board should represent the various constituencies of the so-called stakeholders, but no longer. Rather, he explains, "A board should focus entirely on the future success of the enterprise. It should reflect, in its construction, the nature of the company that is to be. In other words, the desired future of the company should be represented by the board today." The board, he maintains, "should help pull the company toward its vision." He also adds, "The board should not be too large so that it can play a serious coaching and counseling role with senior management, particularly the CEO."

Ram Charan: Critical Feedback

Dr. Ram Charan is the author of the book Boards at Work, published in 1998 by Jossey-Bass. He is an experienced consultant, practitioner, and strategist at the CEO level. His unusual first-hand experience with so many...