Board Governance and Fiduciary Duties: Managing the Board
Master board governance. Understand fiduciary duties, run effective meetings, manage directors.
Key Takeaways
- Fiduciary duties: Duty of care (make informed decisions, diligent), duty of loyalty (act in company interest, not self), duty of good faith (honest, transparent). Example: Board votes on acquisition. Duty of care = board members reviewed financials, asked questions. Duty of loyalty = didn't vote for personal benefit (family deal). Duty of good faith = disclosed conflicts, honest discussion. Violation: Director sued (personally liable). Cost: Director liability insurance £10-30K/year. Reality: Rarely enforced for early-stage private, more common as company matures.
- Board structure: Odd number (3, 5, 7) = tie-breaking. Typical Series A: 3 directors (CEO + 2 VCs, or 1 investor + 1 independent). Series B: 5 directors (CEO + 2 VCs + 1-2 independent). Independent director: Not investor, no material business relationship. Committee: Audit (financial oversight), Comp (salary, options), Nominating (board composition). Cost: Director fees (not common for VC-backed, but paid for independent directors £25-50K/year). Time: 6-8 board meetings/year, prep time 10+ hours/board member/meeting.
- Board meeting best practices: Agenda (distributed 48 hours prior, focused). Materials (financials, narrative, decisions needed). Time: 2-3 hours (1 hour metrics, 1 hour strategy, 30 min approvals). Notes: Minutes (decisions made, action items, owners, deadlines). Closed session: Board only, no management (for performance, strategy). Frequency: Monthly informal (email update), quarterly formal (2-3 hour meeting), annual (strategy + comp planning). Culture: Transparent (share both good and bad), collaborative (board as resource, not oversight police), action-oriented (make decisions, execute).
Board Governance and Effective Oversight
Building a high-functioning board. **Fiduciary duties of directors** Duty of care: - Make informed decisions (review materials, ask questions) - Diligent (spend adequate time, investigate thoroughly) - Conflict check (disclose conflicts, recuse if needed) Example: Board votes on acquisition - Review: Terms, valuation, synergies, risks - Questions: Ask CEO hard questions - Challenge: Dissent if don't agree - Document: Minutes show diligence Duty of loyalty: - Act in company best interest, not personal - No self-dealing (except disclosed) - Majority vote (conflicts don't vote) Example: Director's brother has vendor company - Disclose: Tell board the relationship - Recuse: Don't vote on vendor approval - Vote: Rest of board votes without conflict Duty of good faith: - Honest and transparent - Follow process (respect bylaws, governance) - Act reasonably (not reckless) Violation consequences: - Personal liability (director sued personally) - Directors & officers insurance (covers legal costs) - Reputational (can't serve on future boards) **Board structure and composition** Board size: - 3 directors: Too small (no diversity), works for seed/early - 5 directors: Ideal (enough diversity, efficient decisions) - 7+ directors: Complex (slower, more coordination) Typical composition (Series A): - CEO (founder/hired) - 2 VC investor directors (voting control) - 0-1 independent director (outside perspective) Typical composition (Series B): - CEO - 2 VC investor directors - 1-2 independent directors Independent director: - Not investor, no material business relationship - Often hired (paid £25-50K/year) - Benefit: Outside perspective, credibility Board committees: 1. Audit: Oversee financials, accounting, internal controls - Meets quarterly - Reviews: Financials, independent audit results 2. Comp: Oversee salary, bonus, options - Meets annually - Reviews: CEO compensation, option pool, vesting 3. Nominating: Oversee board composition, refreshment - Meets annually - Reviews: Board skills, independence, succession **Board meeting best practices** Quarterly board meeting: - Timing: Each quarter - Duration: 2-3 hours - Format: In-person or video (monthly email updates in between) Agenda: | Time | Topic | Owner | |---|---|---| | 0:00-0:20 | Financials (KPIs, P&L, cash) | CFO | | 0:20-1:00 | Business update (sales, products, ops) | CEO | | 1:00-1:45 | Strategy discussion (2-3 key topics) | CEO + board | | 1:45-2:00 | Approvals (consent items, resolutions) | Board | | 2:00-2:15 | Closed session (board only) | Board | Materials (distributed 48 hours prior): - 1-page board summary (headline, metrics, risks) - Financial package (P&L, balance sheet, cash) - Deck (strategy, decisions needed) Minutes: - Decisions made - Action items (who, by when) - Dissenters (if any) - Attendance Closed session (board only, no management): - CEO performance - Compensation decisions - Strategic options (fundraising, M&A) - Director evaluation - Succession planning Culture: - Transparency (share good and bad) - Collaboration (board as advisor, not adversary) - Focus (clear decisions, not endless discussion) - Action (execute, then report results)