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Can a close friend or big customer serve on my board of directors?

In his weekly advice column, Maynard Webb advises a founder to weigh the board’s needs, and to cast a wide net.

Can a close friend or big customer serve on my board of directors?
[Photo: IvanC7/iStock]
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Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.

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Q. I currently have two VCs and two founders on my board, and I’m looking for my first independent board member. There is a great potential board member, who also happens to be an exec at our largest customer. I have close friends who have had big exits who could be good board members. I need to better understand what I should look for. And what’s a conflict, and what’s not?

Founder of an enterprise software company that has raised a Series B round

Dear Founder,

Before we get into the specifics, let’s first focus on what you need.

·       What is the most important thing you are looking for to help grow your company?

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·       What is the gap you are trying to fill? Look at yourself, your founding team, and your leadership team, and figure out where the long-term gaps are. You are not looking for the short-term gaps as those are things you can usually fill with a hire on your team. Long-term gaps are blind spot. (For instance, a very simple one is if you’re a technical CEO, you may want to consider a board member who brings significant go-to-market experience.)
 
While you’ll need to find someone who can help you fill that missing gap, you will also need them to have capabilities that span beyond that in their arsenal. You need a board member who can addresses the pain point you currently feel, but who is also a great generalist—that’s a necessary quality for anyone who is coming along with you on the journey. The best board members are not people who are experts in one field; they are people with diverse experiences who can contribute in a broader state. Robin Washington, who sits on several boards, including Salesforce and Alphabet, says, “The best boards have individuals who come from a policy background, are very technical, or operational, even those who are not even necessarily related to your industry, but they’re going to bring different ways of thinking about issues you’re trying to solve.”
Remember, you are entering into a long- term relationship. You are likely making a decision that will be with you for five to 10 years and the decisions made will have ramifications for even longer. Bill Trenchard, partner at First Round Capital, recently summed up what you should be looking for as this: “Find somebody whose advice you really can’t get enough of. That’s the number-one thing you should look for.”
The people you are considering have two very different skill sets. One is going to help you understand what other customers might want from your company. The other is the person who scaled a business who can be a partner to you and help you think through the challenges you’ll face. Adding a friend to a board can be good because you already know them, and they can provide support. But remember that can also be difficult, for example, if they’re not carrying their weight. As with everything, communication is key, and you’ll need to have that conversation in advance.
Let me address your specific question on potential conflicts. If the candidate is coming from a large customer, they probably have their own guidelines around what percentage of their spend constitutes a conflict. Jeff Sanders, vice chairman and co-managing partner of the global CEO and board practice for Heidrick & Struggles, a friend of mine who has done hundreds of placements, says that most times there is some conflict, but what’s important is determining how much. You have to think about it in two ways: What’s a conflict now? And what’s a conflict if you’re really successful with that person as a customer? (There are ways to deal with that: You can put a cap in place where they have to rotate off if you achieve a certain level.)
Selecting your first independent board member is a very important decision, and it sets a tone. I believe you should do a broader search and get to know potential candidates as well as you can through spending time together and through referencing them. (Consider where their allegiances are; if they worked with the same venture investor on 10 other boards, will they really act independently when the chips are down, or will they side with the investor? That’s something worth investigating.)
 
Finally, today more than ever, you have to be focused on building a diverse board. This is not only because it’s the right approach, but it may also be required. On December 1, the Nasdaq filed a proposal with the SEC for new board diversity requirements. Look for some guidance and tap into your network to help you find the best candidates. Talk to CEOs who put their first independent board member on their board; they went through exactly what you’re going through. Ask your investors, many of whom have talent partners, or pay a recruiter to come in and help you. It’s best to have a wider set of options to choose from. As Jeff Sanders said recently, “No one wants to make a choice from one. Have a couple of benchmarks to validate that you’re making the right decision.”