OnBoard: We need a better ‘yardstick’ to measure startup board performance

The not-for-profit organisation OnBoard, which pairs aspiring directors as observers with established boards in a bid to improve boardroom diversity, has gathered wide-ranging feedback on the role directors serve.

“It was everything from, ‘my board’s a complete shocker, how do I get rid of these people?’ through to ‘this is what excellent looks like, we are firing on all cylinders’,” says OnBoard founder Cassie McAdams, who knows the startup scene intimately as an investment manager at venture capital firm Movac.

The key takeaway from the report, which included 111 survey responses from across the startup ecosystem, was that the typical governance functions that board members provide on established boards are of less value to founders running fast-growing startups.

“Startups are totally resource constrained and often led by people that are inexperienced, or even doing it for the first time,” McAdams points out. 

“For a startup, often a board director is the first person to jump in and add that extra layer of support. What came across quite loudly in the report was that people value strategic input from their directors rather than that governance skill set.”

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As such, the types of tools and processes that fill how-to books for board directors are less applicable to the startup scene. Respondents singled out an ineffective board chair who was ‘spread too thin, unmotivated or inexperienced’ as being the biggest factor weighing down a board. 

But an underperforming CEO, ill-suited to leading the company, or suffering burnout, was a similarly serious factor.  

OnBoard suggests startup boards establish a clearer picture of ‘what good looks like’. It suggests startups normalise the concept of a fixed-term tenure for independent directors, which is common for listed companies and established boards at larger companies. 

Investor directors may feel a need to protect their shareholding by maintaining a board seat, but should be aware if and when they aren’t adding value. To that effect, OnBoard recommends that startup boards have an annual skills matrix assessment and 360 degree feedback process in place.

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Am I adding value?

‘At the end of every meeting ask fellow directors ‘am I adding value?’ and be mindful of when it may be time to switch out for an investor representative,’ the OnBoard report, The State of Start-Up Governance in New Zealand, suggests.

“New Zealand board contributions vary massively from worse-than-useless (destructive) to extremely impactful. We could do with better alignment between the investor community and founders/management about what good governance is,” Andrew Simmonds, founder of Kindrik Legal, told OnBoard.

The survey heard from many respondents that they’d learned to be a startup director simply by filling the role, suggesting there’s scope to help founders and CEOs level-up their skills.

“If there's no kind of a yardstick that you can use to compare yourself to, and that is going to enable you to be self-aware and have those courageous conversations, then it's a lot harder,” says Sophie McLernon – OnBoard’s programme director and growth director at crowd equity platform Snowball Effect.

OnBoard this week opened applications for its 2024 cohort of board observers. Successful candidates are paired with the board of a leading startup for a one-year board observer role, and also complete a classroom curriculum on governance fundamentals. Around 150 people apply for an observer role each year with 25–30 places available. 

The scheme is sponsored by DLA Piper, New Zealand Trade and Enterprise, Callaghan Innovation, NZGCP and the Institute of Directors, with the likes of KiwiNet, the MacDiarmid Institute, Te Pūtea Te Wakatipu Trust and LawVu sponsoring scholarships. 

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Board-ready first timers

The board observer scheme is part of a bid by OnBoard to help improve the diversity of startup board rooms. According to OnBoard’s research, 19  percent of startup board seats are held by women, while 54 percent of New Zealand startups don’t have any females on their board.

Of the female directors, 43 percent are independent directors. The remaining 57 percent are founder/CEO/executive directors (34 percent) or investor directors (23 percent).

But as important as tackling gender and ethnic diversity is improving diversity of thought. New Zealand has more than 2,400 startups. Not all of them have a board of directors in place, but the growing demands for startup governance puts major demands on those with the skills and time to do the job.

McAdams says an antidote to that problem is for startups to consider more board-ready first timers.

“Startup founders and CEOs told us they really want their strategic nous anyway. Appointing board-ready first timers would broaden experience from underrepresented groups,” she says.

“It is really important in tough decision making and complex scenarios because everyone brings a different life experience to the table.”

OnBoard now plans to look at startup board remuneration and will use the feedback from the startup community to put together resources that boards apply to monitor their performance and ensure they are adding value.

“We're looking at something else that's going to help to address education on a wider scale,”  says McLernon. 

“They could be the business as usual tools that allow people to benchmark themselves.”

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When’s the right time for a startup to have a board?

Serial startup investor, board director and Trade Me co-founder Rowan Simpson has some thoughts on the matter…

Early stage: When the shareholders are just founders and perhaps some family/friends as investors, a large board will slow the company down, rather than help. I encourage founders at this stage to pick one or two people to use more as advisors than as directors.

‍First external shareholders: In my experience this is when a traditional board structure starts to make sense, and most investors will include some constraints around this in shareholders agreements (for example, the size and composition of the board, who gets to appoint directors, which decisions require full board approval and so on). 

Normally the directors are investors or are representing investors directly, which can be complicated. Those directors need to balance representing themselves or the investors who appointed them to the board, and representing all shareholders (as they are legally obliged to do as directors).

‍Growth stage: Later, it might make sense to appoint some independent directors to fill gaps in the skill set of the board. For example, at Timely we appointed two independent directors from the health and beauty sector. This is when the way the board operates starts to look more like a more mature company.

Source: The State of Start-Up Governance in New Zealand

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