An entrepreneur recently asked what he should look for in a potential director on his board.  That’s a pretty tough question as any entrepreneur can tell you.  As I started listing off all the potential traits that would be important - prior startup experience, industry contacts, mentorship, leadership, board experience, operational expertise, etc. - I realized I may be describing a person that could never exist…

So instead of looking at all the traits a board member should have, I thought it was valuable to the entrepreneur to describe the key roles a board plays.  By understanding what a Board of Directors is responsible for (and is involved with) in a company, hopefully you can identify the right mix of people to round out your board.  So if you board is full of people with lots of industry contacts, perhaps you need to look for someone with prior startup experience or perhaps someone with finance and accounting skills.

There are five key roles a board of directors’ play within the company, and particularly play with respect to a high technology startup company. Those roles are:

• Legal Role
• Representative Role
• Strategic Role
• Advisory Role
• Service Role

The Legal Role played by the board of directors is determined by federal and state laws (primarily state laws governing the state of incorporation, but other laws may also be implicated), rules and procedures set forth in your corporate Articles or Certificate of Incorporation and corporate Bylaws, and additional rules and statutes from the Securities and Exchange Commission, Financial Industry Regulatory Authority or other entities that regulate certain stock exchanges.

The Representative Role relates to the relationship between the corporate shareholders and the board of directors. As discussed previously, the board of directors historically had been elected by the shareholders as representatives and acted out the will of the shareholders. And while that relationship does remain in some senses, particularly in that the shareholders continue to elect the board, the power has shifted in many cases to the hands of the directors. Even so, it is still important to recognize that the board does represent the interests of the shareholders and is responsible for providing oversight in the interest of all shareholders of the corporation. This relationship can be at issue in cases where a shareholder (oftentimes a holder of a sizeable stake of stock) believes the board is not acting in the best interests of the shareholders, but courts have tended to give substantial deference to the board.

The Strategic Role largely stems from the role the board plays in corporate decision-making. Due to the fact that a board will be responsible for approving decisions from potential acquisitions to option grants to new hires, the board will hold an important role with respect to certain strategic decisions. The challenge that some corporations is the balance between the board and management in these strategic decisions. However, there has been research that suggests there is a positive relationship between a board’s involvement in corporate strategy and the performance of the company.

The Advisory Role for a board of directors is most often seen in the earliest stages of corporate development. Early investors in the company, oftentimes who represent venture capital funds or other serial startup investors, will provide capital for the corporation, but may also view their role to guide and assist the company in its earliest stages. The experience many of these directors will have of working with numerous companies in a similar market, at a similar development stage, or facing common market conditions gives the board the ability to provide advice and insights to the company.

The Service Role of the board and its members come as a result of the fact that many small and early stage companies will not pay their board members until the company matures or will only pay a nominal fee for board service. Compensation will usually be in the form of stock options, reimbursement for travel expenses or stipend for meeting attendance. At least in some senses, the board and its members will be providing service to the company and its contributions will be aimed at adding long-run value to the entity.

When selecting anyone to join a board, remember the varied roles the board fills — and look to create a board with the right mix of personalities, skills and backgrounds to fill the roles.  Ultimately, a board can be a key extension of the management team and instrumental to the business’ success.