Every Founder or CEO of a successful, high growth company gets to the point where they need to find a Chair. It’s not effective to be both CEO and Chair, and it’s certainly not the secret to success. This realisation sometimes comes naturally, when a founder reaches peak ‘overwhelm’ with the day to day. Most often however, founders are prompted to see the value a Chair could add by their companies’ investors or early stage backers. This can be a difficult pill to swallow when founders feel that introducing a Chair means relinquishing strategic control, or giving up their autonomy. So why are investors so keen?
Why is having a Chair so important?
“Typically the CEO or Founder role is a lonely one. It is important that the person in that position has someone to lean on, to rely on for advice and to help navigate the demands of the various stakeholders. A really good Chair can do a bit of everything (and be highly effective)”, says James Lewis, Investment Director at Downing Ventures. “I would expect a Chair to be in touch with the Founder or CEO at least twice a week and would therefore be able to keep everyone else informed (the investors & shareholders). I then only have to talk to the Founder once every few weeks, allowing them to get on with running the business.”
Jens Düing, Senior Partner at Frog Capital, said: “We don’t have a Chair in all of our businesses but we have them in most. Where a Chair can help is really broad - they could help in an organisational role - being the conduit between the investors and the executive board, and in some cases a Chair is there to complement the skills of the board. The Chair is also closer to the industry than we are as investors so can fill that crucial hole.”
How involved do investors want or need to be in the selection process?
Bruce Macfarlane, Managing Partner at MMC Ventures said: “If there is no Chair when a company comes to us, we will usually make suggestions through our own sourcing processes. If a Chair is already in place, we want to be comfortable that they are providing the right guidance - sometimes, a company might need somebody different for the next stage of their growth.”
James Lewis added: “We don’t need to run the process for selecting key hires but we do like to be involved. An important point to make is that there can be different Chairs for different stages of a business. At an early stage, they may need to be very involved but as the company and management team mature, they would take a step back and guide, rather than manage, the process.”
What are the most important skills for a Chair to have? Do they need to have been a founder?
Bruce said: “You need someone who is very supportive and interested in the business - willing (in a constructive way) to challenge the management. I don’t believe that they need to have been a founder themselves. It’s a very difficult job to do well, but a good Chair makes such a massive difference. It’s important that Chairs run very efficient board meetings, it is very easy to get bogged down in the weeds rather than the strategy. The Chair of a fast growing company is not an extension of the management team, they need to be above that. The fact that in the UK we separate Chairs from Chief Executives is a very helpful, low cost feature of the corporate landscape - they are a really valuable resource. American friends and investors are pleasantly surprised when they see the value an independent Chair can add.”
James added: “I think that they should have been involved either as Founder or CEO. For the businesses I work with, this means they will naturally have a greater understanding of the scale problems and can support the Founder/CEO. Gravitas is very important too - a Chair needs to be able to make a significant impact and this is where reputation can help. The important skills for me are persuasion, organisation, marketing and communication.”
Jens said: “For us, whether a Chair has been a founder or not depends, but more often than not they are successful entrepreneurs. I look after our continental european businesses and there is a distinct difference. In the UK you have a Chair, non exec or exec. All our UK businesses have a Chair, but on the continent they usually only have one (either a Chair, non exec or exec). The board construct is more important therefore (and the Chair role). If you have someone who can unite a disparate group of investors that is the most important skill for me.”
How do you work out what level of comp to pay a Chair (cash vs. equity)?
Jens said: “It completely depends on the market - there is a different level in the UK compared with Europe. There is the element of how involved with the company the Chair needs to be in terms of their time commitment, their passion and how involved they want to be. As an example, we had a very involved Chair who came in who had a passion for the branding side of the business. He spent a large effort in improving the feel of the website, from which we saw a flow of conversions. I have also seen a Chair move back from the US to Chair a UK business. It’s all about the person and what they want to get out of the role. There is a lot of room for movement on compensation when someone is passionate about a business.”
Bruce added: “It all depends on the stage of the company but we would expect a mixture of both cash and equity. Our Chairs often want to invest in the business themselves and we encourage this. Our companies see a great Chair as a very reasonable cost.”
James said: “I would rather a Chair be incentivised by the equity upside, because we want them on side and will offer them a chance to invest. Of course, it’s often cash neutral in the first year but on a long-term basis, they are then more committed to the success of the company.”
How big of a factor is diversity in a management team looking to scale up or looking for investment?
Jens said: “Diversity is one of the most important factors, it’s the thing we work most on. Teams hire for CVs and forget that you need diversity in decision-making. We have a team of psychologists who work with the management team. If you hire too similar people, you end up with everyone wanting to do the same thing. A lack of diversity blindsights you - you get a warm feeling (because you are all similar) but you miss a massive opportunity to have people who think differently. They might make situations feel more difficult and challenge you, but this will lead to a better result.”
Bruce said: “Quite apart from fairness and our moral and legal obligations to promote equal opportunity, a lot of academic research shows that better results are achieved through decision making by diverse teams. So it is in the interests of investors and management teams to actively seek out people with different backgrounds and perspectives to join boards and the ranks of senior execs. Venture is all about fresh thinking and risk taking and we need all the input we can get from different points of view.”
James said: “My portfolio is a bit unusual (currently around 40% are female led (founder/CEO)). In terms of diversity, we know that diverse teams perform better and it’s about getting better results. We need to get more diverse people from all backgrounds from the bottom up and nurture people through their career. We also need to fill from the top and have diverse role models that people can look up to. I am very keen to get gender balance on my boards because it improves the conversation and people talk differently. And more diverse boards get better results, there is loads of evidence of this, so it’s the only logic for me. You can’t ignore the facts.”
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