17 May The Evolution of a Life Science Board
Tom Murphy
Senior Vice President
Bench International
How would you characterize the evolution of a corporate board of directors?
Startup companies typically have the founder and early investors serve on the board. The caveat here is unless the founder is a seasoned CEO , he/she should not be the board chair. In fact, the ideal situation is to have an independent board chair who can provide fresh perspectives, remain an active participant, serve as a sounding board for the founder/CEO and help with continuity planning. In addition, a heavy hitting board chair can go a long way to securing additional funding.
The first inflection point is usually a major funding round, which typically results in the lead investor taking a board seat. In addition, a big influx of capital will add additional requirements to the board such as an audit chair. If a partnership is in the offing, the partner company may also take a place on the board, especially if an equity stake is included in the transaction. As the company starts to make strides in the clinic, they need to add board members that can guide the strategy of the company, as well as members who can advise on regulatory and reimbursement issues.
If a company goes the IPO route, the SEC requires a different level of function and structure for the board. Public life science boards are typically comprised of at least six independent members with three required committees – Audit, Compensation, and Nominating/Corporate Governance. This is also the time when gender diversity on the board moves from ‘a good idea’ to a legal requirement in some cases. I tell the leadership to ‘buckle up, you’re going for a ride’. In addition to advising on board member transitions, we tell clients that a really, sharp CFO, one that has been through this process before, can be a huge risk mitigator.
When should board members rotate off the board?
That’s a tough one. One of the more distasteful responsibilities of the board chair is to manage the internal expectations for succession planning and transition of board members. As the company evolves, it requires different or more extensive expertise and that means that some of the early board members will need to step aside. In addition, once a company is publicly listed, it requires a more independent board and it’s time for many of the early venture investors to begin to roll off.. I have also seen cases where the company changes its focus, which results in needing different functional expertise on the board.
At what point should private companies address diversity on their boards?
The short answer is on day one. The smart private companies look to the future. I like to use the Gretzky analogy – ‘you skate to where the puck is going to be’. It doesn’t hurt to add some diversity of thought and background early on. The last few years have focused on gender, but increased emphasis on ethnic diversity is also increasing. The facts are, and the studies confirm, gender and ethnic diversity benefit company bottom lines and will likely be part of corporate leadership for the foreseeable future. I know our clients who have embraced gender diversity in their leadership ranks and boards will never go back. They believe it has set a more professional tone, with value beyond the financials.
What is the benefit of working with an executive search firm for board member recruitment?
The biggest benefit is our ability to tailor your board needs based on the mission and culture of the organization. Searching within your own network or relying on your venture capitalists severely limits the available pool of candidates and, most importantly, can limit the independence and diversity of thought and experience that is so essential to good governance. You’re recycling the same people and not positioning yourself to effectively benefit from your board. We go through a proven process, that results in placing the best leadership talent to move your firm forward. Our goal is to have you as a client for life, your success is our success.
At Bench, we take our clients through an assessment. It is a robust process to identify gaps and needs. Interestingly, what the company thinks they need and what they actually need is often not the same. Once differences are reconciled, we not only cast a wide net for a legitimate pool of candidates, but we also evaluate based on the cultural fit of the board candidate(s) and company. We look for individuals who are collaborative and value diverse opinions. This step saves a tremendous amount of angst downstream as the board grapples with the inevitable challenging issues of running a life science company.