There are too many great ideas that never reach the surface in our industry and that’s where Kineticos’ newest family member, Kineticos Capital, comes in. Through our Kineticos Partner Fund, we’re helping select sponsors, often emerging biotechs, advance their research by infusing funds while providing strategy consulting services along the way.
On our 12+ year journey here at Kineticos, we have come to recognize that one reason great science is often kept at bay is poor management. With that in mind, one of the first things a new CEO needs to do when building a biotech company is to put together a board of directors that can help mitigate business risk. Kineticos’ Founder and CEO, Shailesh Maingi, has lived these very experiences, both good and bad, so we recently sat down with Shailesh to ask him about some of the key considerations when building a board of directors.
Below is a condensed and edited version of a dialogue between Kineticos Founder and CEO, Shailesh Maingi, and Kevin Hampton, Chief Commercial Officer at Kineticos
Kevin: Shailesh, some time ago, you wrote an article about 8 key principles to creating a biotech board. I found it fascinating then, and now that I’ve gotten my first taste of board meetings, I’d like to reflect back on some of those principles. Also, as we launch the newest member of our family, Kineticos Capital, there is no better time to discuss how important it is for an emerging biotech to create a solid board of directors.
Quickly, the 8 principles you mentioned were:
- Limit your board size
- Find people who want to be active
- Complement your expertise
- Seek out diversity in thought
- Find the right mix
- Personality matters
- Set clear expectations
- Compensate appropriately
We don’t have time to get into all of them today but starting with #1, you indicated 5-7 members seems about right for a biotech board. What’s your experience being on and creating these boards that are either undermanned or have too many members? What are the pros and cons associated with that? As a follow-up, are there scenarios where you’d want to start with 3 or so and then build to 6-8 over time?
Shailesh: The reason 5-7 comes to mind is because of a couple of different dynamics: First, it’s important to think about the effective size of teams and what one individual, CEO, or Chairman can manage. If you think about direct reports that one person can easily manage, it tends to be around 5-6. If you start to get past 10, it is hard to manage these types of interactions due to the complexity. The board is a team and team interactions are important when running an effective board. Also, to run effective board meetings, you have to do things in between board meetings and if you try to reach out to 10 people more than 4-5 times per year, it gets to be a lot. That’s why the 4-7 number makes sense.
The other thing that you mentioned is the sequence and building the team up over time. It is better to start with the core group of people and build upon that. The last thing you want to do is to let people on the board that are not good fits. It is helpful to consider people that cover absolutely essential functions of a board and that also compliment your skill set. You may only want 3-4 people on the board including yourself. I am not talking about internal people – these are external board members and I would ensure I have people that have a different skill set and personality than I do. To summarize, start with a smaller board, build it up over time, have the right mix of people, and consider team dynamics.
Kevin: I can imagine aligning 5-7 schedules quarterly is challenging and more than that would be tough. A follow up question to that, let’s say you build out your initial board of 2-3 members and you want to scale up. Would you typically look to existing board members for feedback on follow on board members or would you want to take up sole responsibility?
Shailesh: You want to use as many people in your rolodex to source potential board members. People that you are working with already tend to be a good source. If you trust them enough to be on the board, then you trust their recommendations. I would not limit it to only personal connections, though. If I was going to ask the other board members for recommendations, it’s important to have a specific profile in mind. If I have someone on the board that is very good on the finance side, they may know someone very good on the science side or vice versa. Finding someone with the right skill set ends up being very important and sometimes people end up being more functional when they have one area of expertise.
Kevin: If I look at the 8 principles we have laid out, it looks like 2-6 are about selecting the right people and #2, finding people who want to be active, seems like it could be the most challenging. You can judge diversity in thought, personality and other things through interactions with these people, but I see it as being a challenge predicting if someone truly wants to be active in helping drive a company forward. How does an entrepreneur starting a biotech sift through all the people who want to be on a board and find the people that actually want to be active on board? Let’s start by defining what you would consider an active board member vs. someone just looking to add another thing their LinkedIn profile?
Shailesh: It’s a very important point and I have been on a number of boards where you have people who are very engaged and have been on boards where members don’t read materials before meetings, they are consistently calling in instead of being there in person, or they are not available in between meetings, and aren’t very helpful at all. You really start to wonder why they are doing it at all. The fundamentals are no different than if you hire for any position. You have to set a profile for who you want – what kind of person, what kind of skill sets, what kind of personality, what kind of experience and you have to factor in what stage of development the organization is in. You have to set a profile of that individual and actively recruit for that individual. It comes down to how established the company is. You can also use placement agencies, headhunters, investors, existing board members, and people in your own network. You have to quiz them and interview them to weed out the people who are just there to say they were on the board.
Ultimately, there are a couple of heuristics involved. I tend to want to put people on boards who I know are very active from past experience. There’s an old saying “if you want to get something done, give it to someone who already has a lot going on and is very busy”. The same thing applies to boards, find someone who is very active with other things.
Another thing to consider is that even if they seem to be a fit, you have to be upfront about what you are asking of them in terms of attending 5-6 board meetings per year, reading, not skimming, materials beforehand, providing advice, and advocating for the organization. A lot of times people will understand when you’re looking for active members and they’ll self-select out because they know it is going to be difficult for them.
There are 2 kinds of board members who are problematic: First, people who don’t want to read or prepare, and would rather tell you what they think based on what happened at their own company. Second, the exact opposite – a member who wants to dive into every bit of minutia as if they are an operating individual. That is not the job of the board; you can’t dive down into every rabbit hole. You have to think about the right level to engage and be strategic. There are problems in both areas. You have people that want to talk in generalities and then you have people that are so detailed that it takes the board meetings off track.
Kevin: Setting clear expectations sounds like the key takeaway for me. If you are up front and transparent with your board members, you will likely get the right people on your board. I also suspect it doesn’t take too many board meetings to determine if you made a mistake with a board member.
Shailesh: What’s difficult about that is not just how you feel about how this person is taking this position, but it is also the effect they have on the other board members. If there are only 3-4 board members and one of them is not very engaged, it will disincentivize the other board members and they will not want to participate either. One bad apple can be a major problem, which is why getting the right board members is very important.
Kevin: Let’s wrap up with #8, which is really about compensation. You mentioned in your article that board work is not free and that more times than not, members are granted shares and/or options that vest over time. Are there best practices in terms of specifics or is that something the CEO irons out with their lawyers/accountants given their particular situation?
Shailesh: There is a lot of data on this and there are organizations that survey compensation for boards. What I described is what biotech boards generally do. The compensation depends directly on the size of the organization, the commitment you are asking people to make, and the organization’s ownership structure. For publicly traded company, compensation can be very large. In these startup and early stage biotechs, there are a number of variables. Usually the board is made up of investors and independent board members. It’s different for investors as well. For example, let’s say that you and I, through Kineticos Capital, have invested in a company and are also on the board. We would not be paid in that scenario because we already have a stakeholder share. If you are going to hire 2-3 independent board members, then you may want to pay them a nominal salary. Some companies do this depending on how advanced they are and what their funding situation looks like, but more often than not, they are offered options for between a tenth and 1%. The riskier the company, the more options they receive and these options most often vest over 3-5 years. So as the company shares grow, so do these options.
Kevin: That is all the time we have for this part of our discussion. It has been very helpful, and you have provided good insights into biotech boards and what to consider when creating one. Having a strong, well-functioning board is integral to the success of most startup biotechs. There is more to come later this month. We will talk about how to prepare for a meeting from a CEOs perspective, what makes a good board member from the board members perspective, and how do management teams get involved in board meetings. Thank you, Shailesh.
Subscribe to Kineticos to receive weekly emails containing insightful content.