As a board member over the years, I have talked to many people who want to become directors on boards. They recognize that a great deal of power over the future of a company is wielded by the board, starting with the selection of CEO and including strategic decisions that have significant impact on the prospects of the business to succeed. Becoming a director for a company is also a major milestone in the evolution of a professional’s career. It is the achievement that one may say indicates arrival at the pinnacle of decades of experience and hard work. Therefore, many people want to know how to be invited to the board room, and how to be properly qualified to enter.
Organizations like the Corporate Directors Forum here in San Diego provide a phenomenal educational and networking opportunity. Athena San Diego’s “On Board” program allows women executives and business leaders to interact personally with experienced and accomplished directors, to learn how to prepare for such an assignment. Courses in corporate governance offer impressive curricula at San Diego State University, the Rady School of Management at UCSD, and the Master of Science in Executive Leadership program at the University of San Diego. All of these resources and programs are excellent. But they are insufficient in and of themselves to properly prepare someone for board service.
To be a director is to represent shareholders, to accept the fiduciary responsibility of trust to protect the interests of those shareholders. Directors must also protect the interests of creditors and employees, who are recognized by the law as stakeholders having primary rights to the assets in a company, even ahead of the stock owners, in the event of insolvency.
In my experience, the most important element in my education as a director has been investing my own money and time in companies, taking on the risk of loss and hope for gain personally, while at the same time inviting others to join me in that adventure. To most effectively represent shareholders, a director must know what it’s like to be a shareholder with a significant portion of one’s net worth at risk. If you have put a chunk of your retirement assets on the line, you then have an appreciation for how an institutional investor feels about risking pension fund monies on a business. If you have toiled for years without much or any pay as an entrepreneur, you know what sacrifices employees make in a start-up where most of their compensation is hoped to come from stock options that might be worth much more than the reduction in salary paid during their tenure. If you’ve had to make a tough decision as a director even when it cost you personally, in order to best represent your constituents, then you have viscerally understood the meaning of “conflict of interest.”
I have worked with excellent directors who have not had these experiences. For the most part, such directors are in public companies, where the role is a bit more like public office. A public company director can risk future gain, and typically has some measure of personal investment in the company served. But few public company directors have the same proportion of personal net worth at risk as do founders and directors of smaller, private entrepreneurial organizations. The risk is typically much higher because the business model is as yet unproven and sustainability is in question.
So if you have spent $10,000 on educational programs to learn how to be a director, you have gained great insights and knowledge. If you additionally invest $10,000 in a business that you will run or guide, you will gain the actual experience that makes the theory come alive.
To aspiring directors, I have simple advice: get out there and take some risks. Start a company or invest in an existing one. Invite others to join you in risking their hard-earned cash and explain why it’s a good bet. Worry about whether or not it will be and what your friends will think of you if it’s not. Negotiate compensation with your hired CEO. Put your personal guarantee on a lease or a loan. Struggle for several years with a fickle market and stubborn product performance issues. Figure out a way to create business opportunity and strategy when there seems to be no solution in view.
There is no substitute for jumping into the deep end of the pool, if you want your Director’s “water wings.”
Friday, April 15, 2011