In May and June of this year, I had the opportunity to attend the Board Member Academy at EPFL. About 25 experienced angel investors, startup executives and even current board members came to Lausanne to learn from Virginie Verdon and her guest speakers Jean-Marc Wismer, Guillaume Dubray, Michel Jaquard and Jean de Wolff. Virginie is an experienced board member with a clear message: In order to help a start-up grow and navigate difficult waters, the board of directors has to consist of independent professionals. The sessions were very insightful for me, especially since the other participants (including a couple of Go Beyond members) shared their experiences and the class was interactive with a lot of inspiring guest speakers.

These are my personal take aways from the four afternoons with Virginie and her guest speakers – and from the great discussions we had in the group:

  1. I wasn’t aware that the board is in charge of running the company: If you read Art. 716 CO, you can see that the board is in charge of the overall management of the company, which means to take care of operations, unless the decision is made to formally delegate this task to a CEO or management team. But ultimately, it is the responsibility of the board to issue the directives and the organization of the company.
  2. Independent board members and diversity in a board can add significant value: A couple of years ago, a board membership was often linked to an honorary position with no real duty to manage the company. Boards often consisted of friends or solely of people inside the company. This has been changing as the value of a board has been gaining more and more recognition. Thus, there is a lot of discussion how to professionalize board of directors by appointing independent board members as they are neither investors nor founders or customers. Additionally, heterogeneity in terms of disciplines, ages or gender could provide new perspectives, which may help in strategy development, identification of issues and balancing the different interests.
  3. When times are tough, it’s the board’s task to clean up the mess: Being a board member comes with a lot of responsibility – especially when things are not going well. Ultimately, a board member is responsible for payment of the social insurance contributions. If this doesn’t happen the board may be made to pay the debts to the authorities. You may also have to spend your own money when a company enters the bankruptcy process. In that case, the main responsibility of the board lies in the early notification of the judges (as soon as there are signs of illiquidity) and, in case of bankruptcy, in the initialization of a proper bankruptcy process. For example, you can’t pay any more bills when the company has entered the official bankruptcy process. The board has to organize everything – and there’s no possibility for a board member to step down from his/her role. Take the example of a burn out-induced sick leave during times of trouble: As a CEO you can stay at home and recover, as a board member you will still have to do your duties.
  4. Do not expect to be fully covered by the D&O insurance: First of all, those insurances will not cover the non-payment of social insurance contributions. The directors and officers liability insurance protects directors and officers against financial losses caused by claims for breaches of duty in their functions as directors and officers, but you have to carefully read the exclusions clauses and the terms. What are the amounts covered, what are the damages covered, is the US territory covered, what about working relations? Worse at a start-up company: As insurance companies see high risks you will not get an insurance unless a company is at least 3 years in operation and in a very healthy condition.
  5. Conclusion: Conduct a board member due diligence before joining any board. This is certainly not the same kind of due diligence that you do as an investor: An investor focuses on the exit capacity and the potential of the product, whereas a board member should focus more on potential risks and liabilities of his/her role. Some examples include:
    • Has the company paid social insurance contributions?
    • Is there a risk or liability in the business that could affect the board?
    • How solid is the cash plan for the next 12 months (for each month)?

Overall, it was a very exciting class with ups and downs on the question: Do I want to become a board member? I still would love to help drive a startup’s business to the next level as a board member, but at the same time, I have developed a more balanced evaluation of the risk and reward profile of being a startup board member! 😉

P.S.: There is a new class planned later from September to November 2015 – if you are interested sign up in time so that you don´t find yourself on the waiting list.

This post was originally published on Go Beyond Early Stage Investing.