Every limited company must have a board. Every person on board is personally liable for the operations of the company. Therefore, setting up a startup board can be a daunting task. It can quickly overwhelm a founder with reporting and administration.
As founders juggle multiple roles, including being the largest owner, the operational management of the company, and working on the board, striking a balance becomes crucial.
In this article, we explore how to stay compliant and reap the benefits of senior people advising us, on a startup board without getting buried in excessive reporting. And how to navigate the delicate question of compensation for board members.
Balancing the long-term vision and operational execution for a startup board
Founders are like Agent Smith in The Matrix. They are everywhere at once. Not only are they the biggest owners but also the managers of the team. And have board seats.
Traditionally the long-term vision is set by the owners of the company, a strategic plan is put in place by the board and an operational plan is then created and executed by the operational management team. But when the founders are in every place at once, it is hard for them to know which hat they are wearing. Long-term strategy gets mixed with short-term and execution.
And for external board members coming in to support it is hard to stay up to date on the latest developments. The plans change often. At the same time, there is liability attached to the board seat. Formally, a board member is appointed by the owners to run the company.
This formal responsibility for the company mixed with the fast-moving pace of energetic founders, who are the majority owners, creates discord if you are not very careful.
Try having an advisory board to complement the startup board
Instead of having your advisors on your board, you could set up an informal advisory board. There are no regulations or liabilities connected to an advisory board. So with the advisory board, you can focus on strategy. And since you have to have a board, set one up with yourselves as founders and a chairman who is good with administration, and legal matters.
Keep your startup board small, and let the chairman take care of all the regulatory paperwork. Let’s call this a paper board for the lack of a better word. In that way, the founders can focus on building the business and don’t get bogged down with bureaucracy.
In some cases, investors will require a board seat to invest. If they are an important investor you should give it to them. But beware of the ones who want to be on your board just to feel important.
Compensation for startup board members
Compensating board members can be a sensitive topic. As in all matters of business, it’s a matter of risk and reward. If you use the paper board setup, your chairman should have compensation for the work they will do and the legal risk they assume. To mitigate this, make sure to have board member insurance.
A recommended level of compensation for a board member is about 2 income base amount (“inkomstbasbelopp” in Swedish) and about double that for a chairman. This is based on recommendations from Styrelseakademin for small-sized companies. Compensation can come in the form of cash or stock options.
Ultimately, the compensation is a discussion between the owners of the startup and the proposed board members. But be aware that you can not expect skilled people to work for free. And the last thing you want is someone just sitting on your board without contributing.
Once the startup achieves product-market fit, establishing a proper board with several board members is recommended.
Conclusion
All companies must have a board. But early on, you should strive to keep board work lightweight. Do the bare minimum in your board and get some great advisors as an advisory board to do the strategy discussions with.
Find a chairman for your board to take some of the paperwork off your back.
And make sure to compensate the people you engage.
