Board Effectiveness Tip #5: Have a Lead Director

Two years ago I wrote a series of blog posts on board effectiveness tips. I am adding a new one today. If you have a large board, make sure you have a lead director. “What is a lead director?” you may ask. Informally speaking it is the director who makes sure that the board reaches consensus on important issues. Some companies formally elect director to the lead role, but this is uncommon for startups. 

Startups that have raised multiple rounds of financing can wind up with large boards with three, four or more investors on it. In these cases a disfunction that I have observed more than once is that each investor waits for some other investor to take the lead. And as a result key decisions are either delayed or not made at all, often with dire consequences. This usually happens around really important and difficult decisions, such as replacing a member of the management team, changing strategy, doing a down round or accepting or rejecting an unsolicited M&A offer (especially if that offer is not super attractive).

So if you have a large board, ask yourself who the lead director is. Who will you go to in such a situation to make sure your board members are engaged? And when you go to them, will they have the time and inclination to act as lead director? If you can’t answer that, I highly recommend you find someone among your board members before a crisis arises.