board meeting best practices

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BackStage Pass2006 Board Series– Session 2 of 3

Best Practices for Running a Board Meeting

June 13, 2006

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Today’s Panel

Pascal Levensohn, Founder and Managing Director, Levensohn Venture Partners

Allison Leopold Tilley, Partner and Co-Head Corporate Securities & Technology Section, Pillsbury Winthrop Shaw Pittman, LLP

Bob Walters, Former CEO, Teros (acquired by Citrix)

Harry Taxin, Former Chairman & CEO, MegaPath Networks Inc.

Matt Howard, General Partner, Norwest Venture Partners

Joy Weiss, CEO, Dust Networks

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Session 2 of 3 – TodayBest Practices for Running a Board Meeting

Introduction to the “Board Best Practices” Series

What is the board’s role (from a legal perspective)?

Most common board conflicts and issues

Setting an effective board agenda structure

Content of presentation slides at board meeting

Time for team presentations

Time without team

Interaction with Directors outside of the Board Room

Managing transitional board meetings

Interactive discussion of venture board effectiveness metrics

Q & A

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Preview of Board Series Session 3

Session 3 – November 30, 2006Dealing with a Board in Crisis

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What is the Board’s Role?

Provide leadership, strategic direction, oversight and decision-making to facilitate corporation’s goal of maximizing shareholder value.

Statutes: “… manage the business and affairs”

Appointment of the Chief Executive

Duty of Care

Duty of Loyalty

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Personality and Valuations Are Top Conflicts Most Common Conflicts Between Board and CEO

Venture Capitalists CEOs

Sales & Mktg

Strategy12%

Valuations18%

Mgt. Changes21%

Exit Strategy22%

Personality27%

Burn Rate22%

Exit Strategy18%

Sales & Mktg Strategy

20%

Mgt. Changes16% Valuations

24%

Source: Dow Jones VentureOne/NVCA

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Mgt. Transitions and Exits Are Biggest Issues for VCsVCs: 2 Largest Strategic Issues Facing Boards

64.2%57.6%

17.6% 17.6%

0%

25%

50%

75%

100%

Timing of Mgt.Transitions

Exit Strategies Roles of Early vs.Later StageInvestors

Investor vs.Director Conflicts

Source: Dow Jones VentureOne/NVCA

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Financings and Exits Biggest Issues for CEOsCEOs: 2 Largest Strategic Issues Facing Boards

47.6% 47.0%

25.1% 24.1%

0%

25%

50%

75%

100%

Financing Strategy Exit Strategies Sales & ProductMarketing

Roles of Early vs.Later StageInvestors

Source: Dow Jones VentureOne/NVCA

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The Board Meeting Itself

Frequency of meetings

In-person versus phone calls

Distribution of presentation material before the meeting

The board meeting agenda• How long should the meeting last?• What pace should the board chair maintain?

Content of presentation slides and handouts• Fewer slides are better• “dashboard” slides are useful

Presentations and attendance at meeting

Executive session, time without management

Managing transitional board meetings

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Board Composition– Best Practices

Typical Board CompositionEarly-Stage

BoardSeries B+

Board

Insiders

CEO 1 1

CTO, Founder 0 or 1 0

Investors 1 or 2 2 or 3

Independents 1 or 2 2 or 3

Total 3 to 5 5 to 7

Smaller is more effective

Odd number preferred but even can be OK

Balance investors with independents

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Board Meeting Agenda

Send out to attendees (and their PA’s!) one week before meeting.

List all attendees, visitors, and proposed discussion subjects to avoid surprises.

List contact information for call-in attendees. Identify breaks and food service so attendees can prepare appropriately.

Typical agenda:

General Session – Visitors and invited managementState of the company, global metrics, future issues – CEOFinancial report (Last month/quarter, forward forecast) – CFOSales and marketing reportOperations and engineering reportsWaterfall chartsSpecial presentations (projects or individual initiatives)

Executive Session – Directors and observers onlyApproval of minutes of previous meeting(s)Compensation issues (option grants, exec hires, etc.)Other sensitive issues (M&A, board membership, etc.)

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Typical Financial Reports to Board

Quick period-end Flash report• Prepared and distributed within days of ending the period• Demonstrates close management of key variables

Full period report with variances to budget• Should be available 10 to 15 days after period ends• Timing is a function of accounting system capabilities and

business model (i.e., deferred revenue calculations, etc.)

Objectives• Build and maintain credibility• Inform but don’t overload

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Quick Period-End Flash Report

Headcount, cash balances, other easily measured parameters in sales and operations, such as orders received, installations made (subject to more complete accounting in full report).

Brief status of key projects and initiatives

WHY?• This is how the business should be managed every day, so

this report builds credibility.• Note early warning signs• Take timely repair actions

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Full Period Report with Variances to Budget

Full P&L, Balance Sheet, and Cash Flow for the Period

More details than needed or provided in “external” reports to shareholders, including foreword projections and trends

Comparison to board-approved budget or annual operating plan

Details of key events for the period: sales, marketing, operations, R&D• Sales info to includes actual bookings, forecast, and actual

revenue as well as variances to expectations

Discussion of key personnel adds and deletes

BALANCE: Not Operations Review detail, but meaningful for board assessment of the business.

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Outside the Board Meeting

Interactions between Directors and Management• Does everyone on the board know what the other directors

are thinking?

What happens when the board pushes the CEO too far?• Testing the CEO’s mettle?

Strategic discussions versus operational details• Optimize the utility of your directors, remember why they are

on the board and get as much out of them as possible

VC’s should open doors for the portfolio companies and help them to close business

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Do’s and Don’ts for an Effective Board Meeting

Do call your directors in advance of the meeting to discuss important issues that will be covered at the meeting

Do send the material out at least 48 hours in advance–one week may be wishful thinking, but 24 hours or less is unfair to your directors

Do budget time appropriately across the entire meeting• Stay on schedule!

Don’t squeeze the executive session– this is very important time

Don’t bury your board with details and useless slides– this raises more questions than it answers

Don’t save surprises for the board meetings• Directors do not like surprises

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Metrics for Board Effectiveness are Absent in the Venture Industry

Venture Capitalists

Some metrics17%

Specific metrics6%

No specific metrics74%

Other3%

CEOs

No specific metrics87%

Other4%

Specific metrics3%

Some metrics6%

Why are No Specific Measurements Required?

Source: Dow Jones VentureOne/NVCA

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Best Practices

Director Self-Evaluations• Blind and no attribution• Include CEO evaluation of directors• Why do VC’s have a problem with this?

Being honest about answering a host of questions• How is the company operating?• Is it truly on a success path?• Are the CEO’s skills contributing to the company’s

success?• Is the CEO largely operating from strength or

weakness?

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Closing Discussion on Board Effectiveness

What are some signs of an effective venture board?

What are some signs of an ineffective venture board?

What are some effective methods for communicating whether the board is being effective or not?

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Handouts

“After the Term Sheet: How Venture Boards Influence the Success or Failure of Technology Companies,” Pascal Levensohn & Professor Dennis Jaffe, (November 2003)

“Rites of Passage: Managing CEO Transition in Venture-Backed Technology Companies,” Pascal Levensohn, (January 2006)

The Problem of Emotion in the Boardroom, Pascal N. Levensohn, Directors & Boards, Directors & Boards Magazine (Summer 1999).

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Handouts

A CEO Advisor handout - "Why you care about your board package"

Sample Board Presentation Template

Sample Financial Statement format

Sample report of Equity plan (i.e. shares issued, available, etc.)

Sample Corporate governance guidelines

Board Communication Checklist