November 15, 2021
Board Composition Audits: Establishing the Guardrails on the Road to Success
Introduction to Board Composition Audits
During the early stages of research, conceptualization, and then incorporation, biotech founders are under intense pressure to form a high-profile Board of Directors capable of attracting attention and successfully leading fundraising. Those early pressures can lead to decision-making that’s rushed and often under-informed, resulting in a Board that isn’t generating the insights the company needs.
The Board has a number of critical roles, both early-on and longer-term. Initially, though, their make-or-break function is typically the ability to bring major investors to the table for key fundraising rounds. You might muddle through for a while on the strength of your scientific innovations or the charisma of your founders, but unless your Board has the right dynamics, the right experience, and the right network, the forward momentum will eventually run out.
With too many VC seats on the Board, you’ll lose sight of the science and of operational concerns. Too many insiders, and the Board can end up trying to manage the company instead of direct it. Too many innovators or science experts, and you’ll spend Board meetings focused on products rather than strategies. The list of potential pitfalls is a long one.
One of the best ways to pre-empt serious issues is to undertake a Board Composition Audit. These are best done preemptively, before shareholder or executive frustration makes one necessary. They should certainly be carried out far enough in advance of an IPO or similar high-scrutiny milestone to allow for course- corrections.
LifeSci Search offers a specialized Board Composition Audit for the biotech space. We start by defining your company’s competitive set, relying on the same tools that we use for competitor mapping during executive search processes. Then we identify any potential mis-alignments of expertise or approach between the Board you have and the one you need, as defined by common practices among your best-performing competitors. You’ll receive a thorough analysis of potentially sub-optimal Board placements and potential issues of non-compliance with best-practice structures. From there, we can define job descriptions and competence lists through a comparative process, and help you hire into the gaps.
Value and Outcomes
It’s worth articulating what it looks like when a Board is operating correctly. As a seminal piece in Nature Biotech puts it, “ A board that is doing its job may be thought of as a company’s rudder…One common mistake made by early–stage companies that prevents the board from fulfilling this role is to only recruit board members from a small, familiar circle of associates. This practice tends to create a cozy club rather than a decision– making group that adds real value. The inherent danger of this kind of group is that it nullifies the board’s role of critiquing the company’s direction.”
Instead of selecting only internal candidates or close allies, an ideal board composition should check a few boxes:
- Keep it small. Seven members or fewer is ideal. This needs to be a functional, effective decision-making body.
- Always include at least one founder
- Limit VC membership to two or three. You can and should rely on VC representatives to add insight and perspective, but diversity is critical.
- Include at least two independent experts with established industry experience. They act as mentors for the CEO and offer a leadership perspective to other Board members.
A sample Board Composition:
- Inside Founder CSO
- Inside Representative of Lead VC
- Inside Repeat Entrepreneur
- Independent, BioPharma Talent Acquisition specialist, R&D or Commercial
- Independent Healthcare Financier
- Independent Operational CFO with Capital Markets experience
- Independent Director (operational M.D. or similar)
Of course, it gets more complicated in practice. The primary value of our Board Audits is that we’ll help you match your existing members to these functional roles as accurately as possible, and then flexibly adjust and reconfigure as needed. And then, of course, we’ll provide best-in-class executive search to account for any missing capabilities. Once the membership is established, you’ll also need to think about operating procedures. The best Board won’t offer much if they aren’t given the time they need. Especially early on, there are two critical things to bear in mind.
First, set expectations and establish roles. The Board needs to understand that at every meeting, they need to arrive prepared to make nuanced strategic decisions that account for operational, scientific, legal, and financial concerns. They’ll need to have data ready to hand and arguments fully developed. They should expect the senior leadership to be in attendance, and should get to know one another through networking and pre-meeting dinner events.
Second, present financials in a way that’s both tangible and useful. Orient discussion around your Out Of Cash Date (OOCD), with a relevant chart of your top ten expenses— typically CROs for large studies, external consultants, and outside law firms for regular IP reviews.
Of course, all of this is just a starting point. The real work starts when we put your company and its Board side- by-side with your closest competitors, looking for ways to generate substantial, product-defining advantages.
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