Welcome to the February 2014 edition of The Director’s Dilemma. To read this email in your browser, go to www.mclellan.com.au/newsletter.html and click on ‘read the current issue’. It seems like only yesterday that I was writing to you with the first newsletter for 2013 and now it is time to wish you all the greatest of success for the following year. I really enjoy each issue and the chance to discuss real life board scenarios with such a knowledgeable and insightful group of fellow governance practitioners.
Like most of the true situations the case study this month came to me from one of our readers; he had lived through this precise situation and felt that it had gone ‘less than optimally’. Hopefully the various different ideas in the discussion will assist him to be better prepared in the future. Feel free to email me with dilemmas of your own encountering and articles of interest about boards and governance. By sharing our problems, ideas and experience we can all advance.
This month our case study considers the particular requirements of fast growth entrepreneurial boards.
Consider: What would you advise a friend to do under these circumstances?
Daniel is an experienced company director and, after many years on the boards of the largest listed companies, has been asked by his nephew to advise on the formation of a board for the nephew’s start-up company. The nephew has an ambitious business plan to list the company within two years.
Daniel has never been on the board of an early stage company and has no start-up experience potential problem so he asked around and found two conflicting theories:
The first theory was that the nephew should keep the board as small as possible and have a group of experts whom he could use as a reference source in an advisory board without any governance role. This would allow the nephew to maintain the maximum control for the longest possible period, growing the company and then attracting a good board immediately prior to listing.
The other theory was that the nephew should put together the best board that he could attract so that, upon listing, investors would have a board with experience of governing that company and with credentials suited for a listed corporation.
Daniel can see the logic in both arguments. He knows that as an experienced board member he would prefer to see a good track record before joining the board but also that it is important to build a company for the future and to have infrastructure, including a board, to accommodate the next phase of growth rather than just the current situation.
What information should Daniel seek to determine how to advise his nephew?