The New Era of Boards: Strategies for Staying Ahead–Chris Bixby from Rice Park Capital Management
Chris Bixby is Managing Director of Strategic Equity Investing at Rice Park Capital Management, a private management investment firm. The company manages capital through three complementary investment strategies: residential and commercial credit, mortgage servicing rights, and strategic equity investing, including venture capital.
From 2019 through 2023, there was a ~100% increase in the number of professionals globally who are involved in advisory boards at organizations utilizing their expertise, according to the advisory industry association Advisory Board Centre. We have seen the same trend start to play out in mortgage tech and fintech companies that we follow and with which we are involved.
While CEOs look to their boards for guidance when it comes to operational and strategic direction, they often do not receive the input they were hoping for because their board members may not have enough relevant industry experience. In these cases, CEOs can add an advisory board, or they can reconsider the structure of their existing board of directors. There is also a growing trend for companies to adopt an “Evolved” Board of Directors, which is a combination of an advisory board and governance board. However, establishing these boards can be a significant commitment and each type of board may or may not be the best strategy for all companies.
In this article, we will provide insights into various board and governance strategy options that emerging companies should consider ensuring they are set up for success.
How Boards Have Changed
Historically, there have been two types of boards: governing boards and advisory boards. A governing board is commonly referred to as a Board of Directors. This board’s main overarching responsibilities within the standard board governance model are to offer guidance and direction to management, while also acting in the shareholders’ best interests. However, governing boards have other responsibilities as well, such as overseeing the company’s:
Management team – This often includes selecting the CEO and/or monitoring his or her performance and working with the C-suite to ensure that the right team is in place at the company with the right ethical standards and compliance.
Financial situation – This involves ensuring proper financial controls are being utilized; that money is being prudently invested by considering banking, cash management and contracting guidelines; and outlining policies as they relate to budgets. The ultimate objective is to protect the company’s assets.
Strategic initiatives – This includes supporting the company’s vision and various strategic initiatives such as where to invest capital, deploy resources, or focus time and energy.
Advisory Boards function in much the same way as governance boards, with a few important exceptions. First, advisory board members are not elected, they are appointed, often by the CEO in collaboration with other leadership. Second, the amount of time required is generally less and they are often paid in equity. Third, they do not have voting rights and do not have a fiduciary responsibility to the company.
The Role of Evolved Boards
While some boards are indeed strategic, many are not. Often, boards are comprised of investors and others with strong financial backgrounds, but may have limited knowledge about the company’s industry. We believe that there is a growing trend to address this issue through blending the responsibilities of governance and advisory boards to boost their productivity. And this is where an “evolved” board comes in.
In instances where there is an evolved board, the executive team creates the strategic plan, and the evolved board evaluates it and provides insights into how the plan may or may not work out. The evolved board’s role is to help set the direction by considering outside influences such a competitive forces, technological advances and changing customer preferences — and develops a vision and a mission, complete with goals, strategies and tactics that respond to those outside influences, all of which are grounded in the company’s values.
Ultimately, an evolved board’s role is to help a company better understand the environment or market in which it operates, advise its team on how to be more strategic, and facilitate goal setting.
Getting the Right Executives on the Board
Regardless of the type of board, if the right individuals are not a part of it, it will not meet the needs of the company. To get the best board composition possible, first assess the firm’s internal capabilities – strategy, sales, marketing, product, engineering, corporate development, compliance, etc, and identify areas that fall short. These are operational gaps that need to be addressed.
Then think about the capabilities that the company needs to become successful. Does it need someone who is good at setting strategy, someone with Go-To-Market experience (positioning and marketing), or someone who is good at developing and managing product road maps (something that is especially important tor tech-first companies)? Remember that these capabilities can be met by a combination of existing company team members and board members.
Here are several other important questions to ask yourself when considering potential board members:
Who will be a good partner and will be active and engaged with other investors, management team members, and advisors?
Who will spend time learning the business and become a value-add member?
Who will appreciate how the company is being run – have they been an entrepreneur, invested in similar companies, or been exposed to similar operations?
Who will have a good relationship with potential customers, potential strategic partners, and who will be a good reflection of the company?
Board members must understand the company and the industry in which it operates. They must get in the trenches with a company’s management team. And they must offer each other feedback – and accept it. Board members who are reluctant to share opinions or who constantly agree with everyone else does a company more harm than good.
Also think about what the board candidate brings to the table in terms of strategic relationships that the company can leverage. Oftentimes this is the best way to gain access to different people, companies or industries that could help the company.
One overarching consideration to keep in mind is that there will always be investors who want board seats. The most effective way to deal with this is to ensure that the founder of the board can clearly articulate to investors what they want from board members and why they want or do not want a particular person to serve.
What to Avoid When Selecting Board Members
When choosing board members, here are three caution flags to keep in mind:
Do not seek out board members solely for their name recognition and press release appeal. While it is nice to have prestigious members on your board, you want someone only to be involved if they are willing to contribute more than just their name.
Avoid prospective board members who are entrenched in the past and only want to talk about what they did back in the day. Board members must be up to date with the latest business practices and predisposed to looking forward rather than constantly revisiting the past.
Do not simply select people you know because it is easy. This creates a tendency to discard the interview process and instead just extend an invitation to join – which can be dangerous. Make sure that you are building a board with varying perspectives. To that end, if you are going to ask someone you know – make sure that you properly qualify him/her just as you would with people you do not know.
Ensuring Board Involvement: How to Get the Most Out of a Board
Unfortunately, many people put lots of time and effort into establishing boards, only to see them contribute very little due to a lack of engagement. To have an effective board, you need impactful board members who have several distinct qualities. They:
Collaborate outside of scheduled board meetings
Want or need to make an impact
Leverage networking connections
Help increase revenue growth
With the right people in place, a board can have an incredibly positive impact on a business. Here are several tips that can enhance engagement and improve a board’s overall effectiveness:
Outside of quarterly meetings, establish a monthly cadence of information flow. This can be one-way communication from a manager – just keeping the board apprised of what is happening in the form of a management report, newsletter, or a monthly conference call. This will help prevent having to bring everyone up to speed at the next board meeting.
Send out agendas a few days before the quarterly meetings so members can know what to expect and properly prepare.
Establish operational KPIs, goals and priorities and measure them regularly.
Most board meetings center around the budget. While that should be a component of the meetings, considerable time should also be spent on strategy. Regularly visit your goals and what you need to achieve them.
Remember that people disengage when they do not think they are being heard and/or their input is not valued. Always seek to engage with members’ shared experiences and suggestions.
If you disagree with someone’s opinion, you should openly (and professionally) acknowledge it. This fosters better transparency and communication.
Be sure to share a road map of strategic initiatives so progress and challenges can be discussed.
Boards – be they governance, advisory or evolved – can be a tremendous asset to companies, particularly tech startups, providing they fill the right purpose, answer the company’s specific needs, and are comprised of the best mix of people to positively affect the organization’s success. But even then, there can be a lack of engagement that can hamper its effectiveness. But with the right structure, right people, and the right practices in place, you can overhaul your board and turn it into a key determinant of future success.
This information has been prepared by Rice Park Capital Management and is subject to change at any time without notice. While all of the information presented herein is believed to be accurate, we make no express warranty as to the completeness or accuracy of the information. Past performance is no guarantee of future results.
Rice Park Capital Management is an Investment Adviser registered with the U.S. Securities & Exchange Commission.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)