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Structuring a Board of Directors

David Young is a Partner at DLA Piper (http://www.dlapiper.com/). In this video he talks about structuring a board of directors.

  1. Founder Directors
  2. Typically a board seat will be designated for the CEO
  3. Outside directors can be a valuable addition
  4. Board seats are often reserved for investor representatives

So in looking at the structure of the board of directors for a private company, there are some sort of important considerations and it's really useful to kinda think about in different buckets of director.

You know, the first bucket and the key bucket is really just the founder directors or the management directors and who are the owners of the business, running the business -- the founder, they will generally be on the board, that's important.

Often, and this happens more often once company takes on third party investors or some kind of outside investors, is there's generally a board seat designated just for the CEO. And that can somehow be an awkward conversation because the founder is the CEO, and really on, so it sort of feels a little bit frightened by that. Although, this is a very customary provision to have in companies because if and when there is a new CEO which often happens because of good things; the company gets a certain amount of revenues grown to a certain point where bringing on a CEO who has been involved with the company that size at that level is important. It's also can really be a value added no matter how company structure to have outside independent director. Generally, the people either have really deep industry expertise or really deep financial expertise, typically someone who is a value add, well-known in history, has had success and also ideally a sort of supplements the skills of the other directors.

And then, you know, the last sort of category of investors you generally see are representatives of investors. Investors will generally negotiate to have one or more board seats on the board of directors, often with the founders, often with one or two independent directors and you know, even though they technically are appointed by their investors or designated them as a matter of corporate law, they have the same official duty to all shareholders that every director does.

So, really getting a good functioning board that's going to kind of fill out both different constituency of the shareholder base as well as different skills set, is really the best way to get the board that's going to maximize value for your company over time.