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What It Takes to Build a Board of Directors from Scratch

4 Mins read

Last year’s incident at OpenAI showcased the importance of having an effective board of directors to advise a growing company.

In November 2023, OpenAI CEO Sam Altman was ousted from the company. The company said at the time the board of directors did not have confidence in Altman’s ability to lead. Investigators found the CEO was not candid in his communications with the board. After resignations from the company and uproar from the public Altman returned, just days later. Many members of his board departed instead. The reasoning for this public disagreement  — members of the board and Altman disagreed over safety measures for artificial intelligence and its rapid growth.

The company now has a new board of directors with different experiences than the last. Many industry analysts note the new board has more experience in technology. The prior board that ousted Altman had more experience in academia, which reportedly led to problems with Altman. This all happened as OpenAI grew rapidly in terms of revenue and notoriety.

This serves as a reminder that board of directors play a valuable role in companies of all sizes and can have a critical say in the direction of your company. With a board that is improperly constructed, problems can arise including disagreement.

One of the best ways to prevent systematic disagreement is to build a board of directors from the early days of the company. There are certain steps to make sure your business does not have the same experience as OpenAI so you can continue serving your customers.

What a Board of Directors does

A board of directors is essential for any company, and sometimes even legally required. According to Investopedia, a board of directors oversees long-term goals like mergers and acquisitions, approves major financial transactions and often hires or fires people for key senior positions within the company. The purpose of a board of directors is to advise companies on how to reach their goals.

Publicly traded companies are required to have a board of directors. Even nonprofits are required to have a board of directors for oversight purposes. It is up to the individual companies and nonprofits to determine the number of directors needed for success.

Regardless of the number, selecting the right board of directors is important for any company to thrive.

How to select a board of directors

The most important part for company personnel and shareholders when hiring a board is to understand the expertise the company requires for the position. Not all companies are alike, different companies will require different types of board compositions. Some may need more leadership, while others need more experience within a certain industry. OpenAI had a board focused on academia. Some believe this is what led to the November 2023 situation.

Officially, company shareholders approve most board of director candidates. But, it is the company or a committee created by the company that puts forth a short list of nominated candidates for shareholders to vote on.

Here are some of the important things to remember when it comes to assembling a board:

Find the right fit

The purpose of a board of directors is to have different levels of diversity and experience. As a company, open your search to different professions and industries to find the right experience. In the end, it is important to remember the candidate selected will play a critical role in helping the overall board effectively govern and oversee the company.

Ensure there is a mutual interest

The most successful boards have a common goal in mind – wanting to see the company they are overseeing thrive. When hiring an individual for the position, the nominee must have the same intentions and motivations. Boards thrive when they are filled with like-minded individuals advising a company.

Remain accountable and transparent

The buck does not stop with the board of directors. In a big company, a company’s board reports to the company’s shareholders who elected them to their seat. Usually, these elections are done on an annual basis but ultimately it is the company that has crafted the guidelines for appointments for the board of directors. Thus, a member of the board of directors needs to have the skills to be transparent with the people overseeing them. Board members who are accountable and transparent also work well with their company.

A board of directors can seem like a novelty; something only wealthy technology companies need. The truth is that a board of directors will work for any type of organization big and small. In addition to holding companies accountable, the group will help plan for the future of the company. A well-put-together group of directors will ensure your company thrives in the long term.

Stuart Wachs has over thirty years’ experience as a CEO, Business Owner, coach and consultant with expertise in leadership development, operations, strategic planning, business growth, turnaround and nonprofits. Stuart has served on, built and led boards and has led or coached businesses in a variety of industries including Technology, Education, Fitness, Energy, Arts & Entertainment, healthcare, nonprofits and many others. He is a certified Metronomics coach utilizing these systems to help business improve on strategy, execution, cash and talent. He works with CEO’s, Leadership Teams, Board Chairs and Boards to guide them in solving critical business challenges, seize great opportunities, align on purpose, strategy and execution while helping them grow professionally and personally.

Board Developer is a company that specializes in matching qualified leaders to for-profit and nonprofit companies looking to establish and improve their board. The company focuses on helping companies build boards from scratch. Board Developer also offers leadership courses for prospective board members and executive coaching.

Board of directors stock image by hxdbzxy/Shutterstock

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