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 Material in this book is for educational purposes only.
For legal advice, please consult your lawyer.
The views expressed by individuals (or companies)
in this book do not necessarily reflect
the views shared by the companies they refer to.

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 Findings from the Vell Executive Search

ENTREPRENEURIAL
BOARDS COMPOSITION
& COMPENSATION SURVEY

Published by
Vell Executive Search
www.vell.com

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 Dora Vell, President
Vell Executive Search
Dora Vell is Managing Partner of Vell Executive Search, a
boutique executive search firm in Boston. Ms. Vell has
successfully completed numerous board member and C-level
executive searches – including CEOs, COOs, CIOs, and Vice
Presidents – at both public and VC-funded companies.
Ms. Vell was a partner in the Heidrick & Struggles technology
practice for seven years. Prior to her career as a search
professional, Dora Vell successfully managed both a
100-person development project and a $150 million sales
organization at IBM. Her sales and P&L experience at IBM has proven useful in sales and
marketing searches as well as with GM, CEO, and COO searches.
As the holder of seven worldwide patents, Dora has an unusually technical background for
a search executive, but one that helps her better understand the needs of technology clients
and technical executive roles as well as probe candidates for the depth of their technical
experience and expertise.
Ms. Vell has published and been quoted in numerous articles including the Wall Street
Journal, Global CEO magazine, Mass High Tech, the OPUS for the World Economic Forum,
Boston Business Journal, Globe and Mail, CIO.com and IEEE. She has been a featured
speaker on leadership at numerous conferences.
Ms. Vell currently serves on the advisory board of garage.com in Canada, and is a member
of the Boston Chapter and board of Entrepreneurs’ Organization. She is a member of the
Boston Club and the NACD, having completed the NACD director professionalism class.
She previously served on the boards of Goodwill, Mary Centre for developmentally
handicapped individuals, and on RBC Capital Partners Telecommunications Practice.
Ms. Vell received an MBA from the University of Toronto, a Master in Computer Science
from the University of Waterloo and a Bachelor in Computer Science from Carleton.
Contact Ms. Vell at dora@vell.com.

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 Boston-based Vell Executive Search, a premier retained executive
search firm, specializes in finding high-level, top-flight technology
executives. Each of the firm’s professionals bring a distinctive
knowledge of and experience in the technology industry. Vell Executive
Search’s credentials, experience, and unrelenting focus on satisfaction
and execution empowers the firm to connect exceptional leaders, with
proven track records, to the best companies.

Vell Executive Search’s mission is to build the best leadership

teams in the world in the technology and IT services
marketplace. Whether large or small, private or public,
global or local, every company requires an effective
leadership team at the top.

www.vell.com iii Vell Executive Search

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 Entrepreneurial Boards Composition Survey
CONTENTS
List of Illustrations.........................................................................................................2
Acknowledgements........................................................................................................3
Foreword.........................................................................................................................4
Introduction...................................................................................................................5
Executive Summary......................................................................................................7
About the Survey............................................................................................................10
◆ Demographic Characteristics of Sample Firms..........................................................11
◆ Global Geographic Concentration..............................................................................11
◆ U.S. State Geographic Concentration.........................................................................11

◆ Canadian Province Geographic Concentration.........................................................12

◆ Industry Concentration...............................................................................................13

◆ Years in Operation.......................................................................................................14

◆ Revenue of Sample Firms............................................................................................14

Survey Results................................................................................................................15
◆ Characteristics of Boards & Members.........................................................................15
◆ Board Composition of Private Companies..................................................................15
◆ Board Composition of Public Companies...................................................................17

◆ Director Tenure............................................................................................................18

◆ Director’s Highest Liquidation Experience.................................................................18

◆ Director Experience – Industry Specialty...................................................................19

◆ Size of Board................................................................................................................20

◆ Proportion of Boards with Empty Seats......................................................................22

◆ Board Involvement......................................................................................................22

◆ Number of Board Meetings.........................................................................................23

◆ Director Remuneration...............................................................................................23

◆ The Relative Importance of Cash and Equity............................................................23

◆ Cash-Based Meeting Attendance Fees.........................................................................24

◆ Annual Cash Retainer.................................................................................................26

◆ Equity-Based Remuneration.......................................................................................27

Conclusion.....................................................................................................................31
Appendix – Survey Questions.......................................................................................34

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List of Illustrations
Figure 1a: Global Geographic Concentration................................................................11
Figure 1b: State Geographic Concentration...................................................................12
Figure 1c: Canadian Firm Geographic Concentration..................................................12
Figure 2: Industry Concentration...................................................................................13
Figure 3: Number of Years Since First Incorporated......................................................14
Figure 4: Size (Revenues)...............................................................................................14
Figure 5a: Board Composition of Private Companies: Spread in Representation........16
Figure 5b: Board Composition of Public Companies: Spread in Representation.........17
Figure 6: Director Tenure – Number of Years on Present Board..................................18
Figure 7: Director’s Highest Liquidation Experience.....................................................18
Figure 8: Director Experience – Industry Specialty.......................................................19
Figure 9: Board Size by Company Size...........................................................................21
Figure 10: Proportion of Boards with Empty Seats . .....................................................22
Figure 11: Number of Board Meetings...........................................................................23
Figure 12a: Director Remuneration:
Cash/Equity for Private and Public Companies................................................24
Figure 12b: Board Meeting Fees.....................................................................................25
Figure 12c: Distribution of Board Meeting Fees Among Firms that Pay Such Fees......25
Figure 13: Distribution of Additional (Non Chairman) Committee Fees
for Firms That Pay Such Fees.............................................................................26
Figure 14: Board Member Annual Cash Retainer . .......................................................27
Figure 15a: Equity Award Structure and Vesting............................................................28
Figure 15b: The Structure of Equity-Based Remuneration...........................................29
Figure 16: The Percentage of Companies of Full Value Stock in the
Equity Portion Compensation............................................................................30

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 Acknowledgements
I extend special thanks to Karen Dumaine, Vell Executive Search, for
coordinating everything; David Maber, Harvard Business School, for statistical
analysis and insights of the data; Jennifer Leclaire, Revelation Media, for her
writing and editing skills; Heather Maxey, Maxey Interactive, for advice on
running the survey; and Ozzie Ciliberti, Vision Design & Advertising Inc.,
for the design and layout.

www.vell.com 3 Vell Executive Search

 FOREWORD
Our goal with this survey is to offer a pivotal guide for leaders who are considering a
change to the structure of their board and corporate governance activities. There is a bona
fide shortage of qualified, executive board members to fill the seats of growing companies,
especially as the private sector unveils vital issues that impact executive board director
searches for companies of all sizes.
It is important to note prior work in this area, so we can compare and contrast changes
in the entrepreneurial board landscape. In 2001, the National Association of Corporate
Directors (NACD) joined Ernst & Young’s Emerging Growth Markets practice to study the
governance practices of entrepreneurial boards.
The NACD study offered valuable perspectives on executive board directors. However, the
market for board directorships has changed over the past six years. By painstakingly
finding and analyzing new facts about entrepreneurial boards, we have brought you the
latest thinking on this topic at a time when executives want to carefully examine the value
and make-up of boards.
The 2001 NACD study measured the extent to which board practices at entrepreneurial
companies differ from board practices at more mature companies and, more importantly,
it defined the most pivotal reasons for disparities.
The Vell Entrepreneurial Boards Composition Survey offers a narrower focus and an
updated perspective relevant for today’s business climate. The results corroborate what
some widely experienced corporate directors and advisors have been saying for some years:
The boards of entrepreneurial companies are different in many ways from the boards
of large public companies. Surprisingly, the Entrepreneurial Boards Composition
Survey on which this report is based showed that even within the ranks of entrepreneurial
company boards, there are notable differences between private and public boards.
The findings are relevant to corporate directors serving entrepreneurial companies with a
talent shortage that affects rank-and-file workers, the executive suite, and board members.
The results will also be helpful to many directors serving mature companies, as well as
companies seeking to find the best and brightest board members who add real value to
the company’s bottom line.
We invite your comments for future entrepreneurial board of directors surveys.
Dora Vell
Vell Executive Search

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 INTRODUCTION
“Only about one-half of Inc. 500 companies report active, engaged boards of directors.
Yet, in my experience, boards of directors are a critical success factor in fast-growing
companies.” So says William Payne, of the Kauffman Foundation.
Payne would know. He’s an entrepreneur and an angel investor. He founded an electronic
materials company in 1971 and sold it to DuPont in 1982. He’s made angel investments
in 30 early-stage companies and served on the boards of a dozen such firms.
When the CEO runs into an obstacle he’s never faced before, a quick call to the board of
directors can offer invaluable advice. Board directors can turn difficult situations into
opportunities, steer CEOs clear of legal liabilities, and mediate disputes among leadership
with the company’s best interest at heart. Far from being a burden, boards composed of
the right directors are an asset to an entrepreneurial company.
Indeed, board directors spell success – and there are business gurus out there who are
willing to fill a vacant seat. How then do you compete for top talent that will take a
company to the next level? There are some common denominators among boards of
directors that are worth noting. The Entrepreneurial Boards Composition Survey will
offer you insights.
One key area that affects all boards is compensation. Barbara Hackman Franklin, a
corporate director and former U.S. Secretary of Commerce, said: “While there is no
prescriptive answer to the right formula for a CEO pay package, we believe there is an
identifiable set of practices that boards can apply to their deliberations. Coupled
with a spirit of courage and rigor, these practices can help ensure that we motivate and
retain the best talent while minding the long-term interest of the organization and its
shareholders.”
Another area: How can you build a board with a diversity of experience to gain the broadest
knowledge base? Jeremy Curnock Cook and Geoffrey Vernon, directors of Rothschild
Asset Management Ltd., an investment banking group headquartered in London, agree:
appointing only recruiting directors from a small, familiar circle of associates is a common
mistake early-stage companies make. This practice, they assert, tends to create a cozy club
rather than a decision–making group that adds real value.
Tenure is another area of concern for a board. How much board experience does a director
need? The Vell Entrepreneurial Boards Composition Survey not only investigates this

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topic but also concerns about the size of the board, how frequently the boards meet, what
percentage of the board is independent, cash and equity compensation, and the prevalence
of empty board seats.
By employing best practices in corporate governance, companies can assemble and
maintain boards that help corporate executives drive greater profits and growth.
Governance offers a level of accountability that keeps entrepreneurial companies on
target with unbiased advice, insights into new and changing market opportunities, and
warnings of potential pitfalls. The board of directors becomes the CEO’s personal advisor.
Directors help level the playing field for entrepreneurial companies seeking to compete
with larger firms. Indeed, board directors have never been more important to a small,
growing company as they are in today’s global business environment.

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 EXECUTIVE SUMMARY
There is little research to help companies develop best practices for attracting, retaining,
rewarding and drawing value from their boards. Often, chief executives are unsure of
the appropriate: intervals for board meetings, compensation, and diversity of the board’s
members.
As a way to cogently and concisely answer these questions, the Vell Entrepreneurial
Boards Composition Survey identifies trends in boards of directors. We surveyed 150
CEOs, venture capitalists and vice presidents of human resources and board directors from
various industries – more than 18 in total – with a special focus on small software and
technology companies in the United States. Approximately 50% of responding companies
had average annual revenues of less than US$10 million and have been in operation
between five and 10 years. Most are privately held.
To put these trends in context, where appropriate, we benchmarked our findings against
the National Association of Corporate Directors’ (NACD) Effective Entrepreneurial
Boards 2001 Survey. We also drilled down into our data to expose differentials based on
size, ownership structure, length of time in business, and revenues. By comparing findings
to the NACD’s survey, and by comparing private and public companies where possible,
we were able to highlight board practices at entrepreneurial firms, especially small
technology companies. We also discovered a diversity of remuneration structures worth
noting.
The following offers key findings from the Vell Entrepreneurial Boards Composition
Survey, and provides eight recommendations for entrepreneurial boards.
Entrepreneurial Board Composition
The median proportion of independent directors is 20% at private companies. That
number skyrockets to nearly 70% at public companies. Venture capital representation is
much more prevalent at private companies.
Industry Specialties
Approximately one fourth of all directors represented in the survey reported significant
experience in the software industry. More than 20% came from the financial services
sector, while more than 10% came from telecommunications. Consumer products and
service experience represented less than 5%.

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Director Tenure and Experience
The median director in the survey’s sample of small technology firms reported a 3
year tenure. In 2005, the median director among S&P 1500 firms had six years tenure.
Although less than 10% of respondents reported greater than US$100 million in
revenue, the median director has at least $100 million in liquidation experience.
Entrepreneurial Board Size
The average board represented in the survey hosts six members. The median number of
directors at the smallest firms within our survey (i.e., firms with less than US$5 million in
annual revenue) is five. The median number of directors at the largest firms within our
sample (i.e., firms with greater than US$25 million in annual revenue) is seven. When
we compare public and private companies with the same revenue, we find similarly sized
boards.
Entrepreneurial Board Vacancies
Roughly 1 in 3 private companies have at least one empty seat on the board.
By contrast, only one in six public companies has a vacant board seat.
Board Involvement
The number of board meetings at respondent companies ranged between one and 28
meetings per year. 80% of companies had between 4 and 12 meetings. The median
(mean) number of meetings among respondent firms was six (seven) meetings per
year. The median number of face-to-face meetings was 4 per year.
Cash and Equity Overview
Private companies are much more likely than public companies to either not pay their
directors, or rely exclusively on equity awards, such as annual awards or awards upon
appointment. Only 27% of our survey respondents pay a board meeting fee. Nearly
50 % of the firms that pay for board attendance pay exactly US$1,000 per meeting.
60% of firms that pay board member meeting fees also pay additional fees to non-chair
committee members. The median cash payment among companies that make such
payments is US$1,000.
Annual Cash Retainers
There is a strong association between a company’s revenues and the dollar figure of the
annual cash retainers they pay to board directors. Specifically, among the size-matched
public firms that pay a cash retainer to board members, the median retainer is US$12,500
for public entities, and US$20,000 for private ones.
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Equity-Based Remuneration
In 44% of private companies, board members receive equity awards only upon joining
the board. Only 4% of public companies employ the same policy. The board receives an
annual equity award and equity upon joining the board at 71% of public firm respondents.
Only 18% of private companies follow such a policy. Equity remuneration, when it is part
of the overall package, is higher on average than prior samples taken of entrepreneurial
companies.
Recommendations:
Vell Executive Search suggests the following approaches for entrepreneurial firms:
◆ Fill empty board seats. Empty board seats devalue overall production of the board and
rob your company of the opportunity to draw from the wealth of experience that seat
could offer.
◆ Maintain a diversity of skill sets and industry experience on your board. This offers you a
well-rounded perspective on the opportunities and challenges your company faces.
◆ Ensure that the skill sets on your board match your company strategy and complement
the skill sets on the management team and the board.
◆ Pay close attention to the candidate’s overall industry experience and credentials.
◆ Seek to grow your board to about six to eight members. Too many members can breed
confusion; too few can leave important perspectives buried.
◆ D irect boards, especially in fast-paced industries, such as software and
telecommunications, hold board meetings more frequently than companies in
traditional industries.
◆ Define your ideal board candidate and pursue them. Experienced board directors
will often agree to serve for stock options rather than large cash-based compensation
packages.
◆ Make equity compensation part of the package in order to attract and retain the interest
of top-level executives. Only 50% of our survey respondents offer stock options/RSUs or
some other type of equity compensation.

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 Entrepreneurial Boards Composition Survey
Findings from the Vell Entrepreneurial Boards Composition Survey

ABOUT THE SURVEY

Vell Executive Search set out to reexamine the state of board director membership
in entrepreneurial companies. Our goal in this document is to:
◆ Identify trends in board practices and corporate governance of entrepreneurial
technology companies
◆ Provide a baseline to benchmark practices and compensation

◆ Compare and contrast practices of private companies and public companies

◆ Analyze the reasons for the differences in practices

◆ Establish a benchmark to measure future trends in board membership.

Over the course of four months, Vell Executive Search contacted a non-random sample
of companies and 150 responded. The survey was conducted through a targeted e-mail
distribution to ensure optimal response. Vell Executive Search sent invitations to participate
in the survey to CEOs, venture capitalists, vice presidents of human resources and board
members.
The survey questionnaire posed roughly 25 questions, requiring over 150 separate data.
These questions spanned three broad categories: (1) company characteristics, such as
size, industry, and ownership structure, (2) board composition and background, and (3)
board remuneration. These responses represent the primary data on which this report’s
findings are based. (Note: Approximately 150 companies completed at least one
section on the electronic survey. )
For a detailed view of the geographic and industrial sectors of the respondents, see
the charts displayed on the following pages. Approximately 50% of the companies
had average annual revenues of less than US$10 million. That makes the revenue of
the sample firms much smaller than those studied in earlier research. The majority

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of responding firms were privately held companies. Two thirds of firms have been
operating for more than 10 years.
Demographic Characteristics of Sample Firms
Vell Executive Search purposely chose a broad range of companies in terms of
varied locations, industries, ages, sizes, and ownership structures in order to define
both corporate-wide and more granular trends.
Of the 93% of survey respondents with headquarters in North America, 63% are located
in the U.S. and 30% are located in Canada. (See Figure 1a.) The remaining 7% of
participating firms are headquartered Europe and in Japan.
Figure 1a: Global Geographic Concentration

USA
63%

Canada
30%

France 2%
UK 2%
Hungary 1%
Japan 1% Greece 1%

U.S. State Geographic Concentration

Of the 63% of responding firms that are headquartered in the U.S., the majority are
based in Massachusetts. California, Connecticut, New Hampshire, and Pennsylvania
are also represented in the survey results. (See Figure 1b.)

Massachusetts
Connecticut 45%
6%

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6%

New Hampshire
5%

Pennsylvania
5%
 30% France 2%
UK 2%
Hungary 1%
Japan 1% Greece 1%

France 2%
UK 2%
Hungary 1%
Japan 1% Greece 1%

Figure 1b: State Geographic Concentration

Massachusetts
Connecticut 45%
6%

California Massachusetts
6%
Connecticut 45%
6%

New Hampshire
5%
California
6% Pennsylvania
Other 33% 5%

New Hampshire
5%
Canadian Province Geographic Location
Pennsylvania
Of the 30% of firms that are headquartered
Other 33% in Canada, the 5%
majority are located in Ontario.
However, Quebec, British Columbia and Alberta are also represented in the survey.
(See Figure 3.)

Figure 1c: Canadian Firm Geographic Concentration

Ontario
69% Quebec
13%

BC and Alberta
Ontario
18%
69% Quebec
13%

BC and Alberta
18%

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 Industry Concentration
Vell Executive Search elicited responses from a wide variety of industries, from education
and healthcare to hardware and telecommunications. In fact, the survey represents the
practices in more than 18 industries, which include utilities, retail, financial services,
banking, insurance, real estate, consumer products manufacturing and consumer services,
manufacturing, aerospace and automotive, business services, and software.
More than 40% of the firms represented in the survey serve the software industry.
Approximately 9% of the participating firms are involved in producing telecom
equipment, while another 7% provide telecommunications services. (Figure 2
summarizes the industry concentration among respondent companies.)
Figure 2: Industry Concentration

Education

Utilities

Retail

Healthcare

Financial Services, Banking, Insurance, Real Estate

Consumer Products Manufacturer & Consumer Services

Manufacturing, Aerospace, Automotive

Hardware

Telecommunications Services

Business Services

Telcommunications Equipment

Other

Software

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Years in Operation
The firms that responded to the survey have a common thread: most are younger
businesses. One third of the companies represented in the survey have been
incorporated for less than five years. Two thirds of the firms have been incorporated
for five to ten years. None of the respondents have been incorporated for longer
than ten years. (See Figure 3.)

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Figure 3: Number of Years Since First Incorporated

5.1 - 10 Years

5.1 - 10 Years
3.1 - 5 Years

3.1 - 5 2.1
Years
- 3 Years

1.1 - 2 Years
2.1 - 3 Years

< 1 Year
1.1 - 2 Years
0% 10% 20% 30% 40% 50% 60% 70%

< 1 Year

Revenue of Sample
0% Firms 10% 20% 30% 40% 50% 60% 70%

Most of the responding firms have revenues of less than US $10 million. Only 11% of the
sample firms had annual revenues of over US$100 million. By contrast, the average firm
in the NACD’s study of Effective Entrepreneurial Boards had average annual revenues of
US$122 million. The proportion of respondents that are privately held – 77% – is similar
to the NACD Survey.
> $100M

$50.1M - 100M
Figure 4: Size (Revenues)
$25.1M - 50M

$10.1M - 25M
> $100M
$5.1M - 10M

$50.1M - 100M
$1.1M - $5M

$25.1M - 50M< $1M

$10.1M - 25M 0% 5% 10% 15% 20% 25%

$5.1M - 10M

$1.1M - $5M

< $1M

0% 5% 10% 15% 20% 25%

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 SURVEY RESULTS
Characteristics of the Boards & Members
The characteristics of the boards who completed the survey were dramatically different,
even among companies doing business in the same industry. Perhaps one of the most
insightful differences is the make up of the board members’ professional backgrounds
and industry experience. For example, there were large variances among companies in
the proportion of board members who are company officers, venture capitalists, major
investors and independent outsiders.
Much like NACD’s study, our results revealed public company boards are significantly
more independent than private company boards. The median proportion of independent
directors is 20% at private companies. That number skyrockets to nearly 70 percent at
public companies. There are four reasons why:
First is the talent myth. CEOs and investors believe that they cannot attract world-class
talent to a privately held company. That premise is flawed. Our experience has been that
senior executives want to give back and enjoy contributing to entrepreneurial companies
for reasons beyond compensation.
A second reason it is common to see fewer independent directors on the boards of private
companies is the lower level of external scrutiny for the independence of board members
in private companies.
A third reason is control. VCs and private equity players sometimes want to maintain tight
control of the boards of privately held companies.
A final reason is that this is not top of mind for the board members or the CEO. Typically,
the board’s first concern is attracting a management team. Later, the board focuses on
its own makeup. This ties back to the first premise that CEOs and investors mistakenly
believe that they cannot woo top talent to entrepreneurial firms.

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Figure 5a: Board Composition of Private Companies: Spread in Representation

Independent

Consultant
KEY:
Denotes the median
Supplier representation, among
REPRESENTATIVE

all boards in the sample

Customer

Investor

VC � Canada
� Hungar
Attorney

Officer

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65

Proportion of Board that has given relationship with the company

(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)

Not surprisingly the proportion of venture capitalists on private company outstrips

Independent
public company boards. VC representation is much more prevalent at private
companies.
Consultant
At the median private firm, almost one in five
KEY: board members brings a
Denotes the median
VC affiliation.
Supplier At the median public firm, there is no VC representation
representation, among on the board
REPRESENTATIVE

all boards in the sample

of directors.
Customer
With VCs focused on private companies, it stands to reason that VCs who
have invested in private companies will take a seat on the board of those companies
Investor
and exit the board when the company goes public.
VC

Attorney

Officer

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85

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 Investor

R
VC � Canad
� Hunga
Attorney

Officer

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65

Figure 5b: Board Composition of Public Companies: Spread in Representation

Independent

Consultant
KEY:
Denotes the median
Supplier representation, among
REPRESENTATIVE

all boards in the sample

Customer

Investor

VC

Attorney

Officer

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85

Proportion of Board that has given relationship with the company

(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)

Considering the relatively short lifespan of the responding companies – most firms
were in operation for less than 10 years and none have been doing business for more
than 10 years – it follows that director tenure at the surveyed firms is short.
Specifically, the median director in the survey’s sample of small technology firms
reports a mere 3 years tenure. By contrast, in 2005, the median director among S&P
1500 firms had a 6 year tenure. Given that more than 65% of respondent companies
have been in business for 5 to 10 years, we can conclude that many directors were not
members of the board when the companies they serve were initially launched.

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 5 Years Six Years
8% 8%
Seven Years
7%
Four Years
Figure 6: Director
11%Tenure – Number of Years on Present Board Greater than Seven Years
13%

5 Years Six Years

8% 8% Less than 1 Year
Seven Years
7% 3%
Three Years
Four
14%Years
11% Greater than Seven Years
13%
One Year
15%
Two Years Less than 1 Year
21% 3%
Three Years
14%

One Year
15%
Two Years
21%

The survey discovered a welcomed disparity, though, between the director’s tenure on
the board and his/her experience in the technology sector. Although less than 10% of
respondents reported greater than US$100 million in revenue, the median director has at
least $100 million in liquidation experience. (See Figure 7.)

Figure 7: Director’s Highest Liquidation Experience

> $100M
49%

$50.1M - 100M > $100M

10% 49%

0 - $10M
21%
$25.1M - 50M
$50.1M - 100M 11% $10.1M - 25M
10%
9%

Massachusetts is a technology hotbed. Given that the greatest concentration of surveyed

0 - $10M
companies are located in the state, it’s not surprising that approximately
21% one fourth of all
directors represented
$25.1Min the survey report significant experience in the software industry.
- 50M
11% $10.1M - 25M
9%

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More than 20% of board members come from the financial services sector, while more
than 10% come from telecommunications. About 8% are in the business services
field, while about 7% are in the hardware sector. 5% are in the health care and
pharmaceutical field. Less than 5% are in the education, manufacturing, aerospace,
and automotive fields. Consumer products and services were least represented, with
less than 5% of directors coming from that sector of the economy. (See Figure 8.)

Figure 8: Director Experience – Industry Specialty

Consumer Products and Services

Education

Manufacturing, Aerospace and Automotive

Health Care & Pharmaceuticals

Business Services

Hardware

Telecommunications

Other

Financial Services

Software

0% 5% 10% 15% 20% 25% 30%

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 Size of the Board
The average board represented in the survey hosts six members. This mirrors the NACD’s
survey of entrepreneurial boards. The finding suggests that boards of small technology
firms are substantially smaller than boards at most public corporations. For example, a
2006 study conducted by Spencer Stuart, a global executive search firm headquartered
in Chicago, showed that the average S&P 500 firm has 10.7 members on its board. That
same study shows a mere 15% of S&P 500 firms have eight or fewer board members.
To put these statistics into perspective, consider the practices of S&P 500 firms. Spencer
Stuart found that 57% of S&P 500 companies pay a board meeting fee and 58% of
S&P 500 companies pay a committee meeting fee (both down from 72% and 68%,
respectively, in 2001). According to Spencer Stuart, the average meeting attendance
fee paid by S&P 500 corporations was US$1,955 in 2005. Although it is possible that
the lower prevalence of meeting fees in our sample firms is due to a greater adoption
of “good governance guidelines,” we feel that the decreased emphasis on meeting fees
likely reflects the fact that many small technology firms are cash constrained and
have directors with significant equity stakes.
Drilling down into the survey results for small technology firms participating in our
study shows a clear relationship between the size of a company and the size of its
board. For example, the median number of directors at the smallest firms within
our survey (i.e., firms with less than US$5 million in annual revenue) is five. The
median number of directors at the largest firms within our sample (i.e., firms with
greater than US$25 million in annual revenue) is seven. The size of boards varies
considerably at companies of similar size, especially among firms with less than $25
million in annual revenue. (See Figure 9.)

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Figure 9: Board Size by Company Size

KEY:
Denotes the median
Greater size, among all boards
than in the sample
Revenue ($ US)

25 Million

Between
5 and
25 Million

Less
than
5 Million

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Size of Board
(Bottom of Bar = 10th Percentile; Top of Bar = 90th Percentile)

Given that the public companies in our sample are significantly larger than the private
companies, the public companies had much larger boards. However, when we compared
public and private companies with the same revenue, we found that the median size of
boards was virtually identical. Using this sub-sample of revenue-matched firms, we find
that the median difference in board size is zero. In other words, holding revenue constant,
half of private firms have boards that are at least as large as those of public companies, and
half of private firms have boards that are at least as small as those of public companies.
However, in cases where public boards are larger than private boards, public boards tend
to be much larger than the private boards. And when private boards are larger than public
boards, the discrepancy is generally smaller (by approximately one member).
Noteworthy is the significant difference in the number of empty board seats across public
and private companies. Roughly 1 in 3 private companies have at least 1 empty board seat.
By contrast, only one in six public companies have a vacant board seat. (See Figure 10.)
This finding holds for both the revenue-matched and non-matched samples. Differences
in company size or factors that are typically associated with size, such as the visibility of
the corporation, do not make a significant impact on the number of empty board seats.

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Figure 10: Proportion of Boards with Empty Seats

Public Private:

0% 5% 10% 15% 20% 25% 30% 35%

Board Involvement
Board involvement is fairly consistent across industries, despite some swings in both
the high and low end of the spectrum. The survey demonstrates considerable diversity
in the frequency of board meetings, for example: The number of board meetings at
respondent companies ranged from one to 28 meetings per year. However, 80% of
companies had 4 to 12 meetings. The median (mean) number of meetings among
respondent firms was six (seven) meetings per year. The median number of face-to-
face meetings was 4 per year. (See Figure 11.)

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Figure 11: Number of Board Meetings

KEY:
Denotes the median
Face representation, among
to all boards in the sample
Face
Type of Meeting

Total

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Number of Meetings
(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)

Interestingly, the survey reveals that the frequency of meetings at small technology-
oriented companies is similar to the frequency of meetings at larger, more complex,
organizations. For example, Spencer Stuart’s 2006 survey reports that, among S&P
500 firms, boards had as few as 3 meetings and as many as 39 meetings per year.
According to Spencer Stuart, the average S&P 500 company holds 8.4 meetings per
year, up from eight meetings per year in 2001.

Director Remuneration
The Relative Importance of Cash and Equity
The Entrepreneurial Boards Composition Survey unveiled broad differences in the
remuneration structures of public and private technology firms. In particular, the study
revealed private companies are much less likely to use cash-based remuneration, such
as cash-based meeting fees or a cash retainer. In fact, private companies are much more
likely to either not pay their directors, or rely exclusively on equity awards, such as annual
awards or awards upon appointment.

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Figure 12a: Director Remuneration: Cash/Equity for Private and Public Companies

Private Companies
Equity Only
40%

No Cash and No Equity

25%

Cash and Equity

27% Cash Only
8%

Public Companies

Cash and Equity Equity Only

58% 17%

No Cash and No Equity

0%

Cash Only
25%

Cash-Based Meeting Attendance Fees

Consistent with the “good governance” guidelines that groups like the Council of
Institutional Investors have publicized, the Entrepreneurial Boards Composition Survey
finds most small technology firms do not pay meeting attendance fees to board members,
committee members, or committee chairs. Only 27% of companies that responded pay
a board meeting fee. Among the respondents that pay board members to attend, the
mean meeting attendance fee is US$1,600. The median cash compensation for meeting
attendance is US$1,000. In fact, nearly 50% of the firms that pay for board attendance pay
exactly US$1,000 per meeting. (See Figure 12b).

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Figure 12b: Board Meeting Fees

Greater
than
25 Million
Size (Revenue)

Between KEY:
5 and Denotes the median
25 Million fee, among all
boards in the sample

Less
than
25 Million

2 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000

Meeting Fee (US $)

(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)

Figure 12c: Distribution of Board Meeting Fees Among Firms that Pay Such Fees

Between $1,000 and $2,000

16%

$1,000 $2000
46% 13%

Greater than $2000

9%

Less than $1,000

16%

60% of firms that pay board member meeting fees also pay additional fees to non-
chair committee members. Among the respondents that pay such fees, 35% pay exactly
US$500 extra per meeting, while 40% pay exactly US$1,000 extra per meeting.
(See Figure 13.) And of the firms that pay augmented non-chair committee fees,
40% provide additional payment to committee chairmen. Among firms that make
these awards, the median cash payment is US$1,000.

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Exactly $1,000
40%

Greater than $1000

17%
Figure 13: D
 istribution of Additional (non Chairman) Committee Fees for
Firms that Pay such Fees

Exactly $1,000
40%

Greater than $1000

17%

Less than $500

4%
Between $500
and $1,000
4%

$500 Exactly
35%

Annual Cash Retainer

According to the survey, there is a strong association between a company’s revenues and
the dollar figure of the annual cash retainers it pays to board directors. (See Figure 14.)
The corporation’s ownership structure, however, appears to be the most significant factor
in the payouts. In order to determine whether the size of annual cash retainers varies
across public and private firms, the survey drilled down into the revenue-matched sub-
sample data of the companies described earlier.
Based on this sample, the survey revealed public firms are three times more likely to
pay an annual cash retainer to board members. In other words, when the size of the
companies remain constant, approximately three quarters of the public firms in the size-
matched sample pay a retainer. By contrast, only one quarter of the private firms pay an
annual cash retainer to board members.
Drilling down deeper, the survey offers financial data to fill in the big picture. Specifically,
among the size-matched public firms that pay a cash retainer to board members, the
median retainer is US$12,500. Among the size-matched private firms that pay a cash
retainer to board members, the median retainer is US$20,000. The fact that the median
retainer among private firms is larger than the median retainer among public firms may
seem odd at first glance. However, this anomaly occurs because more public companies
provide cash-retainers, and, therefore there are a greater number of small retainers.

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Figure 14: Board Member Annual Cash Retainer

Greater
than
25 Million
Size (Revenue)

Between KEY:
5 and Denotes the median
25 Million retainer, among all
boards in the sample

Less
than
25 Million

0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000 40,000 44,000 48,000

Annual Retainer (US $)

(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)

Equity-Based Remuneration
The Entrepreneurial Boards Composition Survey discovered significant differences in
the structure of equity-based compensation across public and private firms. In 44% of
private companies, board members receive equity awards only upon joining the board.
By contrast, only 4% of public companies employ the same policy. Instead, individuals
receive an annual equity award and equity upon joining the board at 71% of public firms.
Only 18% of private companies follow such a policy. (See Figure 15a.)
Not surprisingly, the survey confirms public and private firms differ in the emphasis
they place on stock options vis-à-vis full-value awards, such as restricted stock, deferred
stock, and unrestricted shares. In particular, public companies rely much more heavily
upon stock options than do private firms. This increased emphasis is present in both
appointment awards and annual awards. (See Figure 15b.)

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Figure 15a: Equity Award Structure and Vesting

Equity Awards: Private Companies

No Equity Retainer Equity Retainer
But Equity Upon Joining But No Equity Upon Joining
44% 5%

Equity Retainer
& Equity Upon Joining
18%

No Equity Retainer &

No Equity Upon Joining
33%

Equity Awards: Public Companies

No Equity Retainer No Equity Retainer
& No Equity Upon Joining But Equity Upon Joining
25% 4%

Equity Retainer
But No Equity Upon Joining
0%

Equity Retainer
& Equity Upon Joining
71%

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Figure 15b: The Structure of Equity-Based Remuneration

Equity Retainer: Equity Retainer:

Private Companies Public Companies
Full Value Awards
& Option Awards
15%

Full Value
Awards Only Option
20% Awards Only
Option 100%
Awards Only
65%

Equity Upon Joining: Equity Upon Joining:

Private Companies Public Companies
Full Value Awards
& Option Awards
9%

Full Value
Awards Only Full Value Awards
Option 21% Option & Option Awards
Awards Only Awards Only 12%
70% 88%

The data for equity compensation shows the median percent of shares outstanding
upon joining as well as an annual retainer for board members and for the board chair.
Only 50% of companies give out stock options. This data is for companies providing
stock options. In terms of board members, a typical option grant would be 0.3% of the
shares outstanding upon joining and 0.1% per year. In terms of the median for the

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chair, a typical stock grant would be 0.5% upon joining and 0.1% per year. Figure 16
provides a more detailed breakdown of equity grants. The implied option price for private
companies is the most current price available, often the price of the stock at the last round
of financing. Many times, if there is an upcoming round of financing, then the option
price could be a blended rate of the current and past rounds of financing. The number of
total shares outstanding in a ‘cliff’ is typically consistent with the option price blended
rate. It is interesting to note that the vesting schedule for option awards varies from 3 to
5 years, with a median of 4 years. These numbers are typical and very expected.
These numbers are surprising and we consider them to be on the high end of what
we have experienced before. They are reflective of very senior board members. A prior
random sample of equity stock option grants showed 0.19%. It is important to note
however that if our statistics included companies that paid no equity, the numbers in
Figure 16 would be lower.
Figure 16. Percent of Equity Compensation
Equity Compensation ( % of Shares Outstanding )

Remuneration Upon Joining: Remuneration Upon Joining:

Board Member Board Chair
Board Member N Median Board Member N Median
Restricted Stock Units 9 1 Restricted Stock Units 6 1
Common 14 2 Common 8 1.25
Share Grants Share Grants
Stock Options 65 0.3 Stock Options 25 0.5
Deferred Stock 1 1 Deferred Stock 0 N/A

Annual Retainer: Annual Retainer:

Board Member Board Chair
Board Member N Median Board Member N Median
Restricted Stock Units 7 0.75 Restricted Stock Units 3 1.75
Common 5 1 Common 3 0.1
Share Grants Share Grants
Stock Options 32 0.1 Stock Options 13 0.1
Deferred Stock 0 N/A Deferred Stock 0 N/A
Note: This is the median for companies offering equity as part of compensation.
Roughly 50 percent of our sample offers equity as part of the board members,
compensation package.

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 CONCLUSIONS
The evidence is in and the overarching conclusion is this: Entrepreneurial companies are
flying solo, with little in the way of best practices for their boards. The Entrepreneurial
Boards Composition Survey reports a wide variance in board practices, such as a broad
range in the frequency of board meetings (from 4 to 12). It is clear that small- to mid-
sized companies must take action to develop and incorporate best of breed practices for
their boards of directors in order to derive the maximum benefit from members and to
attract world-class talent.
David Thomson, author of “Blueprint to a Billion” analyzed the seven essentials of
growing companies from zero to $1 billion in revenues. What he discovered is profound.
Tier 1 board members are common to every single company in his research that grew to
$1 billion in revenue. He offers some valuable advice for companies looking to revamp
their boards, or create them for the first time:
“Blueprint company boards were heavily weighed with alliance partners, customers and
CEOs who had scaled a business. Companies with investor-dominated boards tended to
struggle. Blueprint company boards were a much valued extension of the company’s
business strategy and management team. These external members provide cross-industry
experiences that can greatly benefit a company. We thought that smart investors would
dominate the most successful boards. While exceptions existed, Blueprint company boards
predominantly featured some combination of customers, alliance partners and CEOs.”
Whether an entrepreneurial company is seeking to break the billion-dollar revenue mark
or not, the Entrepreneurial Boards Composition Survey offers findings in favor of
carefully selected boards that draw from a diverse base of industry experience. Selecting a
board member needs to be based on company strategy and complementing the existing
skill sets of the leadership and governance team. Given the fact that one-third of companies
that participated in the survey have at least one board seat open, there seems to be either
a lack of recognition of a board’s value, or a lack of understanding that entrepreneurial
companies can attract top talent.
In public companies there are fewer empty seats than in private companies. That seems
to suggest litigation concerns are not necessarily a large challenge in recruiting talent
to the board. It stands to reason that smaller, private companies are not as visible in
the marketplace and therefore may have a more difficult time gaining the attention of
qualified board members. This can be remedied with an aggressive strategy to seek out

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veteran board members. Cook and Vernon assert, “The strength of the board’s composition
should be regarded as a critical success factor that will affect the quality of incoming
investment as well as the quality of decision making.”
While some firms may shy away from taking on the cost of board members – and the
time for meetings – the data shows that it doesn’t take a billion dollars to attract a billion-
dollar mind. In fact, most of the cash outlay is nominal for cash-sensitive companies. The
return on the investment is great. The risk is low. The data also shows that entrepreneurial
companies do not have to settle for inexperienced board members. The sample of survey
participants reveals small companies are consistently attracting veteran executives to their
boards.
The high prevalence of option-based rewards is surprising in light of liability concerns
at large, public companies adhering to Sarbanes-Oxley. Many larger companies are
beginning to move away from distributing stock to directors. However, the lion’s share of
the compensation from small technology companies in the survey appears to be option-
based rather than cash stipends. The data offers some guidelines as to remuneration
requirements for board members, which may be less than many small companies
expected.
To the Sarbanes-Oxley issue, small private companies may not make the front page of
The Wall Street Journal if there is an accounting scandal, but the repercussions are still
potentially devastating for an entrepreneurial organization and its stakeholders. Boards of
directors, and their audit committees, help to establish and maintain proper accounting
protocols.
The overarching conclusion from the Entrepreneurial Boards Composition Survey is
this: Building and maintaining a strong board of directors is just as important – if not
more important – for private companies as it is for public companies. Keep in mind that
the underlying reason for corporate governance rules, such as independence of the board
directors, is for the company’s general health. Entrepreneurial companies in any industry
typically cannot afford to hire the cadre of C-suite executives that make up a dream team.
But a board of directors offers a steppingstone that benefits the company today and into
the future.
Roger Raber, past president and CEO of the NACD, put it this way: “Today’s engaged
director is more committed than ever to providing rigorous analysis and decision making,
as well as adding strategic value to the company and shareholders.”

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 APPENDIX: Survey Questions
Governing Board
1.1. Composition of Board

# of each type # of each type

currently open
Company Officer
Outside corporate
attorney/counsel
VC representative
Other significant investor
Customer
Vendor
Consultants
Independent

1.2. # Board Members who are family members of CEO

1.3. # of Board Meetings Per Year
1.4. # of Meetings Face to Face
1.5. Do you also have an Advisory Board?
Yes  No 

Background of Board Members

Instructions: This survey aims to identify which aspects of corporate governance
(e.g., committees, functions, and competencies) are currently followed. Even though the
company may not employ all aspects, please complete the survey questions that ask for
your view of the importance of each aspect.

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2.1. Background of Board Members
For each board member
Country/State of Residence
Principal Industry Background
Job Function
Check if Board Chair
# of Years on Board
Highest Value of Prior Liquidation Experience
International Experience

Board Compensation
3.1. Board Member Compensation on Joining Board

% of total shares Vesting Vesting Period

outstanding Period (Schedule)
(Fully diluted) (Years)
Restricted Stock Units
Common
Share Grants
Stock Options
Deferred Stock

3.2. Board Member Annual Retainer

% of total shares Vesting Vesting Period

outstanding Period (Schedule)
(Fully diluted) (Years)
Restricted Stock Units
Common
Share Grants
Stock Options
Deferred Stock

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3.3. Board Member Per Board Meeting Fee
3.4. Board Member Annual Retainer Cash amount
3.5. Board Member Per Committee Meeting Fee
3.6. Vesting Period Years

3.7. Board Chair - Compensation on Joining Board

% of total shares Vesting Vesting Period

outstanding Period (Schedule)
(Fully diluted) (Years)
Restricted Stock Units
Common
Share Grants
Stock Options
Deferred Stock

3.8. Board Chair Annual Retainer (In 1000 USD)

% of total shares Vesting Vesting Period

outstanding Period (Schedule)
(Fully diluted) (Years)
Restricted Stock Units
Common
Share Grants
Stock Options
Deferred Stock

3.9. Board Chair Annual Retainer - Cash

3.10. Board Chair Fee per Board Meeting - Cash
3.11. Board Chair Fee per Committee Meeting - Cash

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 Demographics
4.1. Company Type
Public  Private 
4.2. If Private, Amount of Capital Raised to Date:
< $1M 
$1.1M - $5M 
$5.1M - $10M 
$10.1M- $20M 
$>$20M 
4.3. If Public, # of Years Since Going Public:
< 1 Year 
1.1-2 Years 
2.1-3 Years 
5.1- 10 Years 
>10 years 
4.4. # of Years Incorporated
> 1 Years 
1.1 - 2 Years 
2.1 - 3 Years 
3.1 - 5 Years 
5.1 - 10 Years 
4.5. What’s your Principal Industry
Other 
4.6. Company Size (Revenue)
< $1M 
$1.1M - $5M 

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 $5.1M - $10M 
$10.1 - $25M 
$25.1 - $50M 
$50.1M - $100M 
> $100M 
N/A 
4.7. Headquarters of Company
Country:
State/Province:
4.8. Contact Information for Report Results
Name:
Title:
Organization:
Phone:
Email:

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NOTES

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NOTES

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