Originally posted under ‘The Fix’ in the February 2025 issue of Company Director magazine
Our startup has scaled and we need to build a board of directors to ensure best practice governance
How might the roles of our co-founders and main investor change?
As your startup grows, establishing a board of directors becomes a crucial decision for founders, investors and the management team. It should not be entered into without a clear rationale and expectation of what the board is there to do. Establishing a board ensures strong governance and strategic oversight, and ultimately supports the growth and sustainability of your business.
Clearly outline the board’s responsibilities. Establish what the board will oversee, including strategy, risk management and compliance. This clarity helps directors focus on their key duties and avoids overlap. Develop a board charter.
Recruit board members with diverse expertise aligned with your scale-up’s needs. Look for individuals with a mix of skills in financial oversight, industry and/or technical knowledge and strategic planning. Diversity in board composition leads to better decision-making and performance. It is likely majority investors and the founder will seek a board role. Board composition should complement the existing executive’s skills and experience. Directors need to dedicate time to the business, acting as mentors, advisers and industry experts in addition to the fiduciary responsibilities and governance requirements, particularly in the early stages of growth. The size of the board and selection of the chair are critical considerations for founders and investors.
The founders may never have worked in a corporate environment and could find the requirements of a governance board overwhelming and burdensome. Their roles will significantly change and they are often learning as they go. In most scenarios, the founders will join the board, sometimes as CEO/joint CEOs, and almost always as subject matter experts. They have a significant vested interest in the successful running of the business. Clarity of their roles on the board is critical. Similarly for investors, their focus will shift from operational involvement and financial returns to advisory and governance. The role of the new chair and the remainder of the board is to support this transition for both.
Implement comprehensive governance policies that include board operations, meeting schedules and conflict-of-interest management. Many startups and scale-ups are not at the stage of having a company secretary in place and this is an additional layer of cost that may not be warranted initially. Virtual company secretaries are a good option, but over time, employing an excellent company secretary/general counsel permanently can save a lot of time, stress and money.
Ensure an effective onboarding process to help new members understand the company’s vision, challenges and governance practices. Often, founders will tap into existing networks to identify and recruit new board members. Objectivity in this process is critical to achieve the diversity of skills and experience required to effectively lead and challenge appropriately.
Conduct regular evaluations of the board’s performance to ensure it remains effective.
The decision to move to a board of directors is a crucial step in a company’s evolution. The appropriate timing for this can be difficult to determine and will depend largely on the organisation’s goals and the founders’ willingness to move to the next level of maturity. The setting up of a board comes with increased cost and complexity, requiring more time and resources to manage effectively.
Ilona Charles GAICD is CEO and co-founder of Shilo and author of HR for Impact: Practical steps for HR leaders to build influence and thrive.
