Top Performing Boards

Why it’s all about the composition when it comes to successful biotech businesses.

For start-ups and early-stage biotech companies, board composition probably isn’t an issue that you would expect to be near the top of the priority list. But in fact, how a board is structured can sometimes make the difference between success and failure.

Boardroom performance and board composition are integrally related. If you don’t pay attention to its formation and know what you want, you may end up with a dysfunctional board. This requires total alignment on the mission of the company, clarity around culture and values and a clear definition of the qualities and competencies required by the senior leadership team.

As leaders of the board, Chairs have responsibility for ensuring that members have a good blend of experience and skills. This illustrates the point that while securing the right chair is highly important in ensuring that people on the board do what they are trusted to do, the key is ensuring balance.

A 2019 report by Henley Business School, The Role of Non-Executive Directors in Growth Companies, highlights that the increased focus on corporate governance over the past decade or so means that being an NED is considerably more challenging than it used to be. Furthermore, what these additional demands on NEDs mean is that the risk–reward profile associated with a board role can act as a barrier to recruitment.

According to the report, “…there is an indication that the current demands of the NED role, and the risk–reward profile associated with it, are forming an additional barrier to recruitment: while there may be those with the required skill-set, they are not necessarily prepared to take the reputational risk.”

In other words, the days of NEDs being enthusiastic, well-connected amateurs who are simply required to attend a few meetings a year with little preparation are long gone. This is especially true for quoted companies because NEDs are now, on top of their other responsibilities, expected to hold executives to account over their progress in meeting the environmental, social and governance (ESG) goals that investors are increasingly concerned about.

The increased complexity of the NED role is also having an impact on start-ups, making the job of building an effective board more complex. As well as needing to have representation from their various financial backers, who may have different agendas from each other, young companies in the life sciences sector will also generally need to have individuals on their boards – often academics – who have particular expertise in the fields that are the basis for their products. And then there are the roles that are familiar in the corporate world, such as somebody to oversee the finance director, somebody to head the remuneration committee and so on.

Finally, there is the chair, who must be able to steer a course through all these different interests for the benefit of the business and its investors. Their approach may not suit all parties – and indeed about half the chairs we have placed have been catalysts to bring about a change in the business. Sometimes this means that either they or those they put in place end up leaving.

In biotech, taking a strategic approach to board composition from the earliest stage can have a direct impact on funding. This often involves working with the leadership team to define a talent strategy that matches the expectations of potential investors.

Perhaps unsurprisingly, investors take a keen interest in board composition. According to one investor cited in the Henley report:

“The key issues that we continue to see companies struggle with, not just in the small-cap segment but also in the large-cap and across market segments, is the establishment of well-structured independent boards. When we look at the board more broadly there may not be the skill-set there that can support a company in
implementing a new strategy, for instance. So, specifically in turnaround situations, or growth situations, it may be difficult for companies to rely on the directors who have served them maybe very well for a number of years but in this instance require slightly different combinations of skills and particular technical expertise.”

In biotech, taking a strategic approach to board composition from the earliest stage can have a direct impact on funding. This often involves working with the leadership team to define a talent strategy that matches the expectations of potential investors. Another facet of our work with fast-growth businesses is our ability to identify independent non-executive directors who can provide sage guidance to a Board.

The need for balance is also increasingly an issue in another way. Investors want boards to be more diverse. We are contributing in that half of the individuals we place in board roles are female, but more needs to be done to raise the number of female chairs and to boost other forms of diversity.

What we find in biotech is that fledgling businesses will often have great technology and highly talented leaders, but they may well still have significant gaps in their organisational structures. We can challenge them over these issues and then help provide solutions through providing the people who will take them to the next level and beyond. We pride ourselves on a sense of purpose – based on trust – to help make a difference in a sector where many of the advances in diagnostics, therapeutics and related areas are being led by young companies that are creating the future.