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GTAN | Education - Board Governance

February 18, 2020 / Source: GTAN

On Tuesday, February 18, 2020 Karen Grant and David W. Wright of Angel One, a founding member of Equation Angels, presented the Education for Entrepreneurs - Board Governance seminar hosted by GTAN.  

Karen and David shared their expertise on Board Governance, which defines the roles and responsibilities of the Board and Executives. They provided a wealth of knowledge on the importance of Board Governance for startup companies, as well as best practices for Board meetings.

Here are the key takeaways from the presentation:

Fundamentals of Board Governance

They first reminded the audience that in Canada, the Board owes its fiduciary obligations to the Company first, and shareholders second. Karen and David then moved on to the basics of Board Governance, including stakeholders and the role of the Board and Directors.  

Four Key Stakeholders

  1. Founders
  2. Executives
  3. Board of Directors
  4. Outside Investors

Role of Board and Directors

The role of the Directors is to oversee the business and affairs of the company, and provide strategic advice and guidance to management. The Chair is responsible for the Board activities and is the key judge, mentor and supporter of the CEO. The Directors are expected to act in the best interest of the company, build individual relationships, and be available to resolve any conflicts, especially in times of crisis. 

Board Stages

Next, they discussed how there are two Board stages: one at the Startup stage and one at the Angel stage, outlining what the Board’s primary focus should be at each stage.

Boards at Startup Stage focus on: 

  • Cashflow, burn rate and development schedule
  • Developing market/customer understanding
  • Achieving funding milestone(s) before cash runs out
  • Ensuring the focus is not solely on operational issues

Boards at Angel Stage have a broader focus that includes: 

  • Plans and projections
  • Financial statements
  • Expense budget
  • Variance reporting

Best Practices

Why Boards Matter:

Karen and David also shared information about how improving Board Governance significantly improves the success rate of hi-tech startups. One important statistic highlighted that 80-90% of hi-tech startups fail due to bad management with poor oversight from the Board, often due to:

  • Lack of knowledge
  • Poor governance practices
  • Lack of commitment
  • Inference with personal agenda

Concluding their presentation, they shared best practices for Boards and Board meetings, including how startup Boards can be more effective, getting the most from a Board Meeting, and how to achieve a successful Board Governance.

How startup Boards can be more effective:

  • Commit Time: Startups can take more work than established companies — half a day per week; more from the Chair.
  • Continual Involvement: Rapid change with inexperienced management means Directors must be continuously available.
  • Be Organized: Schedule Board meetings and prepare materials in advance. Attend all meetings.
  • Be Informed: Read, review and query - read Board materials in advance of Board meetings and ask questions between meetings.
  • Domain Knowledge: Thoroughly learn the business.

Getting the most from a Board Meeting:

  • A Board meeting which only approves, shares and hears the CEO’s update is boring and poor use of Director’s skills and experience.
  • CEOs should prepare the Board in advance to deliberate on an important issue (whether operational or strategic) where their advance is needed.
  • Arrange casual meetings/dinners around Board meetings to develop common ground for Directors.
  • In a Board meeting, management will learn, the company will have a considered plan, and the Directors will have contributed more.

To have successful Board Governance, you must have:

  • An understanding of the roles of the Board and management
  • An active, engaged, knowledgeable Chair
  • A committed CEO to deliver
    • Full disclosure at and between Board meetings
    • A complete, organized and timely Board Package
  • A commitment to management and the Board
  • A strong Board Secretary
    • To manage the Board agenda, assemble Board packages, keep track of items needing Board approval, and write the Board agenda.

These education sessions are a great way for Angels to learn more about working with startups and helping them scale. If you are interested in learning more about the world of startups and Angel investing, don’t miss our next education event on March 17 to discuss Due Diligence - Step by Step!