The Theranos object lesson is the gift that keeps on giving. We now have the news that they have restructured their board. The elderly former government officials (e.g. Kissinger – age 91, Schulz – age 95, Perry – age 87, Nunn – age 76) are exiting the board and becoming “counselors.” The board size is going from 12 to 5, and high-profile attorney David Boies is joining. They also have announced the creation of a board of medical advisors, which includes some impressive people, although none who are directly in the diagnostic testing space.
Oh, and by the
way, they made all these decisions back in July and just happen to be
announcing the changes after the wave of bad news initiated by the Wall
Street Journal’s recent articles. It’s amazing that any company that has raised more than $400 million (and
maybe as much as
$752 million) was allowed by its investors
to have such a sprawling board that was redundant in some respects (so many
politicians!) while lacking in others.
Don’t set up Board of
Directors if all you need is advice and introductions. A board of directors plays a fiduciary
oversight role, and may be necessary because of the legal form of the
business (C-Corp) or it is expected by investors. Being a fiduciary is a big
deal because board members are legally obligated to operate in the best
interest of shareholders.
Remember that the
Board of Directors is the boss. They
decide who leads the company and how they will be paid, and they decide overall
strategy. Board members may also be
extremely helpful as advisors and connectors, but that’s ancillary to their
fiduciary duties. Here’s a short guide
to setting up a BOD.
Set up a Board of Advisors
if you want advice and connections.
There are no legal obligations here, and no standard format. You identify the people whose expertise or
contacts or insights would be helpful to you.
You seek out their input in whatever forum makes sense – maybe informal
one-on-one phone calls, maybe more formal quarterly meetings or video
conferences. Here’s a short guide to setting up a BOA.
It’s a good idea to have both a board of directors and a
board of advisors. You can even have
multiple advisory boards with different roles, as Theranos is now doing. The BOD should be the small group playing the
governance and strategic role. BOAs can
be larger groups with deep knowledge and wide connections that you can turn to
for advice and introductions. Each type
of board has its own role and its own value to a young venture.
