THE IMPORTANCE OF BUILDING A STRONG BOARD OF DIRECTORS
The composition of a company’s board of directors ultimately can make or break a business.
Warren Cooper, president of Radnor, Pa.-based Coalescence, Inc. and currently a member of the board of directors of Cardiorentis AG, has held numerous executive management positions in the pharmaceutical industry, as well as a number of board positions, both in and outside the life sciences industry. Dr. Cooper believes that a strong board of directors is essential to help guide a company’s overall business strategy and handle problems effectively. The board works to support the CEO in establishing the big-picture issues and generally stays out of the day-to-day operations, explains Dr. Cooper.
But what makes a strong board of directors?
Dr. Cooper draws on decades of experience in the pharmaceutical industry, including several engagements as a chief executive officer and as a member of several boards. He was most recently interim CEO and a director of Nuron Biotech Inc., CEO and a director of Prism Pharmaceuticals and was previously a director for the World Affairs Council of Philadelphia and of Nutrition 21 Inc. He is currently working on another life sciences start-up company and will again take on the founding CEO role.
“Having sat on both sides of the board table as a CEO and as an independent director, as well being the hybrid of a CEO and a board member, I have a broad perspective on the role of a board,” notes Dr. Cooper.
For early-stage companies in particular, directors who can provide both industry expertise and an independent point of view are vital to the organization’s success, he says. “I think that smaller companies, and certainly start-up companies, don’t always pay enough attention to their directors’ role early enough in their history,” adds Dr. Cooper.
In an interview with Ashton Tweed, Dr. Cooper offered his insight into creating a productive and effective board of directors – especially for early-stage companies – and facilitating the company’s and the board’s goals.
Is there a “right” mix of experience that results in the most effective board of directors for an early-stage company?
Outside of the CEO and the founder or founders of the company, the board of directors of an early-stage company is usually dominated by its investors – often to the complete exclusion of independent directors. Inexperienced CEOs often will accept this as a normal situation and not advocate for the inclusion of non-investor directors as early as they should. While investors understandably take early board positions to oversee their investment, events elsewhere in their portfolios, together with progress (or otherwise) at the company can, over time, lead to their interests falling out of alignment with those of the business. Independent directors can help to provide an important bridge and buffer to protect the company at such a time.
When investors’ interests are not fully aligned with the goals and mission of the company, having independent directors – particularly ones with strong finance and management backgrounds – can be a tremendous help in navigating issues with investors that could significantly affect the company. With the turbulent financial markets after the financial collapse in 2008, for example, many companies with boards comprised exclusively of investors ran into difficulties.
A board also should have directors with specific subject-matter expertise – which is quite different than having subject-matter experts as consultants to help shape, guide and operate the business. Mature and experienced board members with subject-matter expertise provide critical knowledge and direction that can guide and educate the rest of the board on key strategic matters and especially when things go wrong.
The nature of the expertise depends both on the nature of the company and its stage of development. A company that has a revenue-generating commercial product would lean towards people with relevant, senior commercial expertise. Or, maybe the board needs a particular geographic dimension because of where the company operates.
One skill set that does cut across most life science companies is manufacturing expertise. In big companies, from which so many entrepreneurs have come, the manufacturing divisions really operate at an arm’s length from the rest of the business. The backbone of the pharmaceutical and medical devices industries is quality manufacturing – being able to make products reproducibly and to very exacting quality standards – a core function that most people, and certainly most investors, do not necessarily appreciate in fine detail. While the clinical trials and commercial prospects get the headlines, the precision and documentation of manufacturing processes is often, in my opinion, the Achilles heel of the business.
Retired or former CEOs can also serve as a great source of experience and guidance to a first-time CEO. Every CEO has to experience being a first-time CEO – it’s a big jump from any other management role and being CEO is something that you can’t learn until you have to do it.
If I’m picking my team – my board of directors – for an early-stage company, I want to have representatives from key investors and, depending on the nature of the business, I’m going to include an independent financial director, an executive with a manufacturing background directly relevant to what my company is doing and someone with a strong commercial background.
Good, experienced directors also have connections, but the ability to generate business leads is not the primary reason you retain directors. If the company needs a lot of business leads, it should hire a well-connected business development executive or consultant. While directors will always want to be helpful, be careful not to compromise the integrity of your directors by unduly leveraging their other relationships.
What’s the key to productive board meetings and keeping directors on the same page?
In my experience, board directors have relatively short attention spans. And the company is in part responsible for this situation. Conventionally, boards may meet every month or every quarter and only for a few hours, maybe a day at most. As CEO, you’re living your company every day, but your board members are not. Their attention span is also affected by whatever else is going on in their lives or in their portfolio of companies, if they are investor directors. So it’s important to keep directors aligned and focused on what you’re seeking to do at the time, and to bridge the time gaps.
Accomplishing this requires very frequent, but brief, communication with the board. As CEO, if you engage with the directors only at board meetings, you’re not keeping the board aware of what’s going on. Something is always happening, particularly in the life sciences, and the board needs to know that.
I have found from experience that very frequent communication, even as often as weekly if dictated by the dynamics of the business, can be very effective. At the company I joined as interim CEO, I took over from a CEO who was also one of the investors. He suggested setting up a weekly call with the directors. At the time, I thought: “What am I going to talk about every week? It’s going to get a little repetitive.” But it wasn’t, in part because there was just so much going on. Some weeks the calls were longer, some weeks they were shorter – and some weeks we skipped them. But by scheduling them, we made sure everyone was up to speed. We didn’t delve into undue operational detail. In fact, I felt as CEO that I had much more complete operational freedom and support because the directors were adequately informed on what we were seeking to accomplish and the major strategic challenges that we faced. These frequent calls were not formal board meetings, they were informational updates — although we could convert them to a formal meeting if that became necessary to conduct the business of the board.
As a result, at face-to-face board meetings every couple of months, we didn’t have any learning curve to bring the directors back up to speed. Everyone was at the same place and we’d just pick up from the last call. The most inefficient board meetings are ones where you have to do a data dump on the directors a few days before the meeting, expect them to read everything – and more often than not they don’t – and then spend a significant proportion of the face-to-face time catching them up when you should be moving forward.
I’m now a very strong proponent of very frequent interactions with the board – and I believe that the particular frequency will find its balance. If you are a CEO of a company moving at a rapid pace of development and dealing with a lot of important strategic issues, you may find that you need to talk every week. If you find you don’t have very much to talk about, just change the frequency of the calls.
Can the CEO fulfill the role of chairman of the board – or should they be separate functions filled by different people?
Having the CEO also serve as the chairman is common in the United States. But separating the responsibilities ensures the CEO doesn’t over-control the flow of information and the dynamics of the board.
It’s not so much that I have a problem with the CEO being the chairman as a matter of governance and nor is it because I am from the UK where CEO and chairman roles are usually held by different persons. I just think the CEO needs someone to turn to for guidance, to bounce ideas off of and to get advice from during a crisis. While the CEO formally reports to the board as a whole, I also find it helpful to report to someone in a more tactical sense. A seasoned, experienced chairman can help manage the board at and between meetings, help with identification and selection of directors, and be a mentor and guide for the CEO.
CEOs who are also chairmen say they can appoint a lead director to fill that sort of role. But it’s not quite the same. A chairman is more than a figurehead and a meeting facilitator. A good, strong chairman can keep the board in line in a way that a CEO sometimes can’t. There’s often a lot going on outside the boardroom that’s easier for the chairman to deal with on behalf of the company and the CEO, for example when investors around the table have different agendas – or to put it more politely – when their interests start to diverge.
How long should directors serve on the board?
I think the minimum term should be three years. It’s not a job for life, but if the nature of the business and the chemistry between the company and the directors is a strong and productive one, keep them on. If a company has made the right choices for directors, then stay with them. And as a director, you want to see the outcome of the issues you’ve been involved in shaping. In the pharmaceutical industry, in particular, it can take years to develop a product or restructure a manufacturing supply chain.
Ashton Tweed would like to thank Dr. Warren Cooper for this interview. If your company needs help from members of the Ashton Tweed Life Sciences Executive Talent Bank, we can supply that assistance either on an interim or a permanent basis. Additionally, if you are among the many life sciences professionals affected by the changes in the industry, Ashton Tweed can help you find the right placement opportunity — from product discovery through commercialization at leading life sciences companies — including interim executive positions and full-time placements. In either case, please email Ashton Tweed or call us at 610-725-0290. Ashton Tweed is pleased to continue to present insightful articles of interest to the industry.