One of the questions I’m frequently asked by entrepreneurs is “what is the most important skill set to look for in recruiting and adding board members for my company?” I’ve watched this debated by my colleagues as well – operational, sales or finance expertise, product knowledge, a vast network and CEO coaching skills are among a host of attributes consistently discussed.
All of these are important characteristics to look for when adding people to your board and you should recruit based upon gaps in skill sets in the makeup of the board. I believe though that none of them are as important as finding someone who has exhibited a history of using good judgment. Good judgment is comprised of many things – honesty, character, integrity and thoughtfulness all come to mind. But good judgment is all of those things in action. Consistent good judgment is acquired over time. Will Rogers once said “good judgment comes from experience, and a lot of that comes from bad judgment.” Truer words have never been spoken.
Not too long ago, a board member who I’ve worked side-by-side with for years exhibited particularly poor judgment that has had significant negative ramifications for the company. He acted in a self-serving manner and placed his own interests ahead of the company. It’s very important to note that he didn’t do this maliciously. He cares deeply about the company and genuinely wants it to be a great success. Nevertheless he didn’t think through the consequences of his actions and subsequently hurt the company and wound up being forced to tender his resignation from the board.
I’m sad to say that I saw this coming. It wasn’t the first time this director had exhibited poor judgment. A handful of times over the last couple of years he acted without really thinking, only the consequences weren’t as serious. Nonetheless, I saw a pattern emerging and predicted an ending like this to other board members. The hard part is that this director was well-liked by everyone, myself included. I always enjoyed his company and he’s one of the brightest people I know. He helped the company on numerous occasions and went out of his way to do so. Nevertheless his poor judgment resulted in a lousy outcome and caused a great deal of heartache and pain for everyone involved and it could have been avoided if the board collectively acknowledged his pattern of judgment and acted earlier than later.
This isn’t the first time I’ve seen directors have a significant negative impact on a company, not by a long shot. Directors have far more influence on the success (or failure) of a company than most people think. They comprise a small group of people who ultimately control the destiny of a company. They are responsible for keeping, hiring or firing the CEO and other C-level executives, approving the budget, raising any material capital (equity and/or debt) or issuing more shares, approving employee options, and many other important decisions. Having people who consistently use poor judgment on your board can have dire consequences. On the other hand having high-character, thoughtful directors can result in massive upside for you.
In my experience, most entrepreneurs give far too little thought as to whom they invite to serve on their boards. They see a big name and they light up thinking about the instant credibility that board member brings and all the connections he or she will make for them. Ask anyone who has served on many boards and they’ll tell you that often the bigger the name, the less work you get and the bigger the headaches. I’ve seen many board members added with very little diligence done and I assure you that’s a recipe for disaster. Most founders I’ve worked with do a great job of diligence before hiring C-level executives, few do the same amount of work before adding a board member.
So what is good judgment and how do you spot it? It’s a little bit like Justice Potter’s famous quote, “I can’t explain it but I know it when I see it.” How do you find out if a potential board member has good judgment? You invest time in getting to know people who have worked closely with them before. Talk to as many people as you can. Ask them about that person’s decision making. How does he make decisions? Is he thoughtful? It’s easier than ever (LinkedIn) to reach people who have worked with someone. I urge founders to put the same time into diligence on prospective board members as they do other key hires.