By Sanié Zahra Rizvi and Klaus Fiebig
On July 7th, OBIO held a Roundtable Discussion with health science companies on Governance.
Although governance may sound like a dry topic, our guest speaker Vanessa Grant from Norton Rose Fulbright and the participation from several experienced CEOs and CFOs made this a lively, must-see event.
Also, good governance and impactful boards of directors (BoD) are key factors that enable companies to scale and grow and position them to raise sufficient funding to do so.
The roundtable covered two practical aspects of governance - building and managing a BoD. Below, we summarize the key, take-home nuggets from the event.
Building a Board of Directors:
BoDs evolve – early start-ups have founder boards, then early stage investors join in, once mature you may need VCs and commercialization experts and, before an exit, you may want M&A expertise.
Functional boards often play both a governance and an advisory role.
After a financing, BoDs are usually aligned. However as the company and funds evolve, there may be opposing interests. Independent/external BoD members can then play an important balancing role by providing a unique perspective and more diverse advice to management.
A skills and diversity assessment grid/matrix is a valuable tool to build your BoD and project its evolution. You may need industry/science, regulatory, financial, and operational skills early on, while other skills such as marketing, international, human resources, risk management, and legal expertise can be added at a later stage. Note that some VC and PE funds are now required by their limited partners to meet gender & racial diversity criteria for the Boards they invest in.
Board Observers can be small investors, large investors that want a second seat, strategics that do not want control, or key advisors.
Managing a Board of Directors:
Examples of Board compensation levels are often from the US. Initially, independent BoD members may receive equity (0.2%-0.5%) plus expenses and D&O insurance. Post Series A compensation may also include a retainer and/or per-meeting honoraria.
Conflict of interest needs to be managed quickly and decisively, and should be discussed early and up front with any new BoD members.
Board committees are used to off-load some of the work to a subset of the BoD. At a minimum, an Audit committee and a Compensation committee are worth consideration. A Financing or M&A committee may be used to streamline term sheet discussions or M&A transactions.
Effective BoD meetings should be well prepared (send board materials 1 week in advance, discuss agenda and issues on calls with chairs and strategic members), never contain surprises, be of reasonable duration (less than 3 hours), and contain a well structured timed agenda and include a full presentation deck. Typically, BoD meetings are quarterly, but can be more often.
A video recording for this event as well as some additional slides provided by Vanessa Grant from Norton Rose Fulbright are now available on the OBIO Members’ Portal.
If you are not yet an OBIO Member, click here to become a OBIO Member today.