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BackStage Pass

2006 Board Series– Session 2 of 3


Best Practices for Running a Board
Meeting

June 13, 2006

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Today’s Panel

 Pascal Levensohn, Founder and Managing Director,


Levensohn Venture Partners
 Allison Leopold Tilley, Partner and Co-Head Corporate
Securities & Technology Section, Pillsbury Winthrop Shaw
Pittman, LLP
 Bob Walters, Former CEO, Teros (acquired by Citrix)
 Harry Taxin, Former Chairman & CEO, MegaPath
Networks Inc.
 Matt Howard, General Partner, Norwest Venture Partners
 Joy Weiss, CEO, Dust Networks

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Session 2 of 3 – Today
Best Practices for Running a Board Meeting
 Introduction to the “Board Best Practices” Series
 What is the board’s role (from a legal perspective)?
 Most common board conflicts and issues
 Setting an effective board agenda structure
 Content of presentation slides at board meeting
 Time for team presentations
 Time without team
 Interaction with Directors outside of the Board Room
 Managing transitional board meetings
 Interactive discussion of venture board effectiveness metrics
 Q&A

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Preview of Board Series Session 3

 Session 3 – November 30, 2006


Dealing with a Board in Crisis

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What is the Board’s Role?

 Provide leadership, strategic direction, oversight and


decision-making to facilitate corporation’s goal of
maximizing shareholder value.
 Statutes: “… manage the business and affairs”
 Appointment of the Chief Executive
 Duty of Care
 Duty of Loyalty

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Personality and Valuations Are Top Conflicts
Most Common Conflicts Between Board and CEO

Venture Capitalists CEOs

Sales &
Mktg Mgt. Changes
Strategy 16% Valuations
Personality 24%
12%
27%

Valuations
Exit Strategy
18% 18%

Burn Rate
22%
Mgt. Changes Exit Strategy Sales & Mktg
21% 22% Strategy
20%

Source: Dow Jones VentureOne/NVCA


Mgt. Transitions and Exits Are Biggest Issues for
VCs
VCs: 2 Largest Strategic Issues Facing Boards

100%

75%
64.2%
57.6%

50%

25% 17.6% 17.6%

0%
Timing of Mgt. Exit Strategies Roles of Early vs. Investor vs.
Transitions Later Stage Director Conflicts
Investors
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Source: Dow Jones VentureOne/NVCA


Financings and Exits Biggest Issues for CEOs
CEOs: 2 Largest Strategic Issues Facing Boards

100%

75%

47.6% 47.0%
50%

25.1% 24.1%
25%

0%
Financing Strategy Exit Strategies Sales & Product Roles of Early vs.
Marketing Later Stage
Investors

Source: Dow Jones VentureOne/NVCA


The Board Meeting Itself
 Frequency of meetings
 In-person versus phone calls
 Distribution of presentation material before the meeting
 The board meeting agenda
• How long should the meeting last?
• What pace should the board chair maintain?
 Content of presentation slides and handouts
• Fewer slides are better
• “dashboard” slides are useful
 Presentations and attendance at meeting
 Executive session, time without management
 Managing transitional board meetings

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Board Composition– Best Practices
Typical Board Composition
Early-Stage Series B+
Board Board

Insiders
CEO 1 1
CTO, Founder 0 or 1 0
Investors 1 or 2 2 or 3
Independents 1 or 2 2 or 3
Total 3 to 5 5 to 7

 Smaller is more effective


 Odd number preferred but even
can be OK
 Balance investors with
independents
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Board Meeting Agenda
 Send out to attendees (and their PA’s!) one week before meeting.
 List all attendees, visitors, and proposed discussion subjects to avoid
surprises.
 List contact information for call-in attendees. Identify breaks and food
service so attendees can prepare appropriately.
 Typical agenda:
General Session – Visitors and invited management
 State of the company, global metrics, future issues – CEO
 Financial report (Last month/quarter, forward forecast) – CFO
 Sales and marketing report
 Operations and engineering reports
 Waterfall charts
 Special presentations (projects or individual initiatives)
Executive Session – Directors and observers only
 Approval of minutes of previous meeting(s)
 Compensation issues (option grants, exec hires, etc.)
 Other sensitive issues (M&A, board membership, etc.)

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Typical Financial Reports to Board
 Quick period-end Flash report
• Prepared and distributed within days of ending the period
• Demonstrates close management of key variables

 Full period report with variances to budget


• Should be available 10 to 15 days after period ends
• Timing is a function of accounting system capabilities and
business model (i.e., deferred revenue calculations, etc.)

 Objectives
• Build and maintain credibility
• Inform but don’t overload

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Quick Period-End Flash Report
 Headcount, cash balances, other easily measured
parameters in sales and operations, such as orders
received, installations made (subject to more complete
accounting in full report).
 Brief status of key projects and initiatives
 WHY?
• This is how the business should be managed every day, so
this report builds credibility.
• Note early warning signs
• Take timely repair actions

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Full Period Report with Variances to Budget
 Full P&L, Balance Sheet, and Cash Flow for the Period
 More details than needed or provided in “external” reports
to shareholders, including foreword projections and trends
 Comparison to board-approved budget or annual
operating plan
 Details of key events for the period: sales, marketing,
operations, R&D
• Sales info to includes actual bookings, forecast, and actual
revenue as well as variances to expectations
 Discussion of key personnel adds and deletes
 BALANCE: Not Operations Review detail, but meaningful
for board assessment of the business.

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Outside the Board Meeting
 Interactions between Directors and Management
• Does everyone on the board know what the other directors
are thinking?
 What happens when the board pushes the CEO too far?
• Testing the CEO’s mettle?
 Strategic discussions versus operational details
• Optimize the utility of your directors, remember why they are
on the board and get as much out of them as possible
 VC’s should open doors for the portfolio companies and help
them to close business

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Do’s and Don’ts for an Effective Board
Meeting
 Do call your directors in advance of the meeting to discuss
important issues that will be covered at the meeting
 Do send the material out at least 48 hours in advance–
one week may be wishful thinking, but 24 hours or less is
unfair to your directors
 Do budget time appropriately across the entire meeting
• Stay on schedule!
 Don’t squeeze the executive session– this is very
important time
 Don’t bury your board with details and useless slides– this
raises more questions than it answers
 Don’t save surprises for the board meetings
• Directors do not like surprises

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Metrics for Board Effectiveness are Absent in the
Venture Industry

Venture Capitalists CEOs


Specific metrics
Other 3%
Other Specific metrics
4% Some metrics
3% 6% 6%
Some metrics
17%

No specific metrics
No specific metrics 87%
74%

Why are No Specific Measurements Required?

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Source: Dow Jones VentureOne/NVCA


Best Practices

 Director Self-Evaluations
• Blind and no attribution
• Include CEO evaluation of directors
• Why do VC’s have a problem with this?
 Being honest about answering a host of questions
• How is the company operating?
• Is it truly on a success path?
• Are the CEO’s skills contributing to the company’s
success?
• Is the CEO largely operating from strength or
weakness?

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Closing Discussion on Board Effectiveness
 What are some signs of an effective venture board?

 What are some signs of an ineffective venture board?

 What are some effective methods for communicating


whether the board is being effective or not?

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Handouts
“After the Term Sheet: How Venture Boards Influence the
Success or Failure of Technology Companies,” Pascal
Levensohn & Professor Dennis Jaffe, (November 2003)
“Rites of Passage: Managing CEO Transition in Venture-
Backed Technology Companies,” Pascal Levensohn,
(January 2006)
The Problem of Emotion in the Boardroom, Pascal N.
Levensohn, Directors & Boards, Directors & Boards
Magazine (Summer 1999).

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Handouts
 A CEO Advisor handout - "Why you care about your board
package"
 Sample Board Presentation Template
 Sample Financial Statement format
 Sample report of Equity plan (i.e. shares issued, available,
etc.)
 Sample Corporate governance guidelines
 Board Communication Checklist

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