Our research paper on Australian startup boards aimed to enable the local ecosystem to think more critically around the make up of their boards of directors. We hope to ensure the right level of governance and support, combined with relevant skillset, exists based on the company’s specific phase of growth.
Taking on the global feedback from existing independent chairs and board members, coupled with surveys with Australian board and founders, we believe there is a need to reassess and shake up current startup board composition. Our work aims to educate founders on the importance of getting a structure and board that is right for their specific phase of growth is a key factor in helping the continued success of business in Australia.
Locally, we see investors dominating startup boards. This is, and will always be, "the norm". At the same time, investors believe that they are best placed to advise and would be reluctant to give up a formal seat.
However, as Tanya Cox expressed in our report, while having investors as directors can help to secure funding, investors might not always have traditional executive backgrounds or have actually scaled a business before and therefore do not have the firsthand knowledge that founders require.
The following is an overview of where the current startup board landscape stands today, as well as how we see this evolving as we continue to scale as an ecosystem:
1. Investor-heavy boards. Due to very small number of exits/founders who have successfully scaled globally and are ready to enter a NED career - the overall number of people who truly understand startups is low. We need to define what a good NED is and how we can help to create this standard. Given that the AICD is largely aimed at listed companies, there is scope for a new governing body specialising in startups.
2. Limited board talent pool. The Startup Board Report There is a very clear case for appointing an independent NED once a startup has raised seed funding and are looking to start Series A. Particularly when multiple investors are about to be introduced, it’s vital to have an independents to manage this effectively and safeguard the long-term interests of the business and founder
3. Need for more independent NEDs All companies know that greater diversity results in better decision making, despite this there’s still a diversity issue on the boards of startups. Only 38% of startups in Australia have any female representation, a figure which is only just above the quota set in 2016 by the AICD. Startups have an opportunity to set the bar when it comes to equal and diverse governance and should implement diversity targets immediately. Setting diversity quotas for the startup industry will help to address this problem
4. Improve diversity across the board When founders reach Series C+, the company has often scaled beyond their experience. This causes a lot of dysfunction and there is a need for someone to hold the CEO accountable, who goes beyond "support and mentoring" to driving high performance. For this reason, having a dual CEO and Chair is extremely problematic, inadvisable and not best practice. We believe we have an opportunity here to truly impact the Australia of tomorrow. Given the importance of innovation to Australia’s future, it is critical that startups and their directors are not set up to fail from the outset. Given the
5. The Chairperson’s evolving role as the CEO’s mentor and boss limited talent pool and the propensity of investors to request a seat on the board, selecting the right board is no easy task. How can we broaden this talent pool? People learn more by doing and first-time directors can get a lot of guidance from sitting on an advisory board and by being a board observer, forcing a revisit to the age-old debate of traditional classroom versus internship-style experience.
Companies such as Khosla Ventures and a16z set their partners up for success by first having them participate in board meetings as an observer to learn from more experienced directors. Ultimately, it is clear that more support in sourcing the best global talent and experienced directors for startups is key to success, not only for the startup but the Australian startup industry.
We need to foster an ecosystem that encourages executives, leaders and directors from all walks of life to engage with startups by reaching out, sitting on advisory boards and being an observer. Pushing the boundaries comes second nature to startups so let’s shake up the status quo and experiment with board structures that facilitate rapid, sustained growth.
