Great companies have great boards. They serve as coaches and mentors to executives, filling gaps in expertise and experience within the C-suite. On the flip side, bad companies almost always suffer from ineffective boards. In fact, the quality of a company’s board can be one of the best predictors of long-term success.
So, here are my key insights on creating a board that supports growth….
Independence: An Overrated Metric
One of the most entrenched beliefs in corporate governance is that a director’s independence from the senior management team is the most important factor in board composition. This perspective, however, is flawed. The topic of independent directors has been extensively studied, and the results consistently show that independent directors either have no impact on corporate performance or, in some cases, a negative one.
To put this in perspective, take a look at the board of Theranos. The company’s board was hailed for its independence. It comprised high-profile individuals from prestigious backgrounds, including government, academia, and the military. These directors were not financially tied to the CEO, a characteristic many would point to as a sign of a “good board.” However, these individuals lacked an understanding of the core business and missed critical red flags. As a result, they couldn’t prevent the company’s eventual downfall.
Take Away: Don’t use independence as the sole criterion when selecting board members. While some level of independence is important, it should not come at the cost of expertise and deep business knowledge.
Employees on the Board: A Key Asset
It’s common practice to exclude company employees from the board, but inside directors—those who are also employees—can offer tremendous value. Unlike independent directors, inside directors are intimately familiar with the company’s day-to-day operations. They bring a wealth of insights and perspectives to board discussions that outsiders can’t match.
Inside directors are often more committed to the success of the company and have a personal stake in its outcomes. They also tend to be more in tune with the concerns of employees and customers, stakeholders that are often overlooked by boards focused primarily on financial performance metrics. This balance is particularly important in high-growth companies, where employee morale and customer satisfaction can be critical drivers of success.
Research suggests that technology companies with more inside directors on their boards tend to outperform their peers. These companies benefit from directors who are deeply embedded in the key areas of the business, such as research and development, sales, and operations.
Take Away: Consider placing one or two directors from critical internal departments, such as R&D or sales, on the board. Their insight and deep commitment to the business will be invaluable.
Business Experience: A Crucial Component
Warren Buffet, one of the world’s most successful investors, has shared his concerns about the lack of business experience among many independent directors. Buffet once estimated that of the approximately 250 independent directors he had worked with, many lacked practical business experience and, as a result, contributed little to improving shareholder value.
The empirical research supports Buffet’s assertion. Directors with operational business experience—those who have managed people, navigated challenges, and led organisations—tend to have a much greater positive influence on corporate performance.
Business-savvy directors can spot inefficiencies, offer strategic insights, and help steer companies through complex challenges. This is especially important for companies in high-growth phases, where operational expertise is needed to scale the business efficiently.
Take Away: When assembling your board, look for directors with hands-on operational experience. These individuals are more likely to provide actionable advice and help solve real business problems.
Busy Directors: A Surprising Advantage
Conventional wisdom suggests that directors who sit on multiple boards may be spread too thin to perform their duties effectively. However, research paints a different picture. Busy directors often bring significant value to the table. Their broader exposure to different industries and companies makes them more knowledgeable, well-connected, and effective.
Busy directors, who are actively serving on multiple boards, can open doors for young companies by leveraging their networks. They bring insights from their experiences with other organisations, which can be particularly beneficial for startups or high-growth companies looking for strategic partnerships or navigating uncharted waters.
For example, John Doerr, a renowned venture capitalist, has served on numerous boards and helped create over a million jobs through his board work. His example shows that being busy doesn’t preclude someone from being an effective and impactful director.
Take Away: Don’t shy away from appointing directors who are active on other boards. Their connections and insights can provide your company with opportunities you might not otherwise access.
CEO and Chair Roles: To Combine or Not to Combine?
Another piece of conventional wisdom holds that the roles of CEO and board chair should always be separate to avoid concentrating too much power in a single individual. However, the evidence supporting this idea is weak. In fact, in some cases, combining the two roles can be beneficial.
Companies that depend on knowledge assets—such as patents or R&D—tend to perform better when the CEO and board chair roles are combined. This unified leadership can provide stability and ensure a clear, singular focus, especially during times of transition.
Of course, there are exceptions. If a CEO is particularly domineering, separating the roles might make sense to ensure proper checks and balances. But in many cases, particularly for companies navigating periods of rapid growth or innovation, combining the roles can streamline decision-making and help the company stay focused on its strategic objectives.
Take Away: Evaluate your company’s needs. In some cases, combining the CEO and chair roles can help maintain stability and focus. However, when dealing with strong personalities or potential governance risks, separating the roles might be the better option.
