BlogInsightsEmerging Biotech Companies Need an Effective Board of Directors

Emerging Biotech Companies Need an Effective Board of Directors

The board of directors is essential to a small and emerging biotech company. The issues confronting these businesses are extensive, from capital efficiency and fundraising to pipeline prioritisation; cybersecurity; executive compensation, talent, etc. Since access to capital started tightening in 2021, most biotech companies have undergone significant reappraisals of their core strategy. While the M&A scene has been slowly reviving, which may breathe new life into biotech investing, it remains a difficult environment. All of this heightens the need for the directors to lean into the company’s challenges, supporting management as best they can, for as long as they can.

For most early-stage companies, the board is usually populated with investor directors nominated from venture capital firms. Many VC partners bring a board valuable insights, experiences, and contacts.  However, the high representation of investor directors introduces compromise when building a board because it limits the spots for independent directors and commonly narrows the range of experiences on the board. Given the challenges and opportunities to which directors contribute, a board thrives when comprised of a diverse blend of the right skills and experiences working together.

One of the board’s principal roles is to decide upon a company’s strategy. In these small private companies, where limited resources often strongly influence strategic options, it can be difficult for the board to align on the strategy and direction, especially when considering the board’s composition and the voting powers of its constituent members. Companies that fall off the pace or become strategically adrift can see the board and management entangle in distracting and energy-sapping battles that frequently result in management changes, but not before the company has suffered further disruption. An experienced and effective board chair, preferably independent, can see off these conflicts and maintain productivity and effectiveness.  

In the earliest stages, the board’s time will be heavily spent on science matters and the strategic and commercial application of the innovation. Financing is usually a dominating objective and demands time on the agenda. The licensing or sale of the technology and its ultimate commercial viability are frequently discussed. And, of course, talent and management are regular agenda items.   

All this underscores how crucial a robust, high-performing, and effective board of directors is for small, growing businesses. Below we examine some of the key reasons small companies need to focus on building a capable and effective board of directors:

Strategic guidance: A capable board of directors can provide strategic advice and expertise to help shape the direction of the business. Their collective knowledge and experience can assist in making informed decisions, setting long-term goals, and identifying growth opportunities.

Access to networks and resources: Board members often have extensive networks and can open doors to valuable resources, such as potential investors, industry connections, and key partnerships. These relationships can be instrumental in securing funding, attracting talent, and expanding the business’s reach.

Governance and accountability: An effective board of directors helps establish a system of checks and balances within the organisation. They ensure that the business operates ethically, complies with regulations across relevant jurisdictions, and maintains transparency. This oversight promotes accountability among management and can enhance the company’s reputation.

Risk management: Boards play a crucial role in identifying and mitigating risks. Through their diverse backgrounds and expertise, board members can assess potential challenges and develop strategies to minimise them. Their oversight helps protect the company from unforeseen circumstances and ensures the implementation of appropriate risk management practices.

Credibility and investor confidence: A strong board can enhance the credibility of a small growing business, particularly in the eyes of investors. The presence of experienced and respected individuals on the board signals that the business is well-managed and has a solid foundation. This can instil confidence in potential investors and stakeholders, increasing the chances of securing funding and attracting additional capital.

Succession planning and talent development: Boards can contribute to succession planning by identifying and nurturing future leaders within the organisation. They can assist in assessing management talent, providing mentorship, and ensuring a smooth transition when key executives depart. This focus on talent development ensures the continuity of leadership and promotes long-term sustainability. The board can also introduce structured diversity, equity and inclusion programs that address DE&I requirements across the company.

Objective decision-making: A diverse board with independent members brings varied perspectives and reduces the risk of bias in decision-making. Their objectivity can help challenge assumptions, stimulate healthy debates, and lead to better outcomes for the business. This diversity of thought fosters innovation and prevents groupthink, enabling the exploration of different approaches and strategies.

In summary, a strong and effective board of directors plays a vital role in supporting the growth and success of small emerging biotech companies. They provide strategic guidance, access to resources, governance, risk management, credibility, and contribute to talent development. A robust board enhances the organisation’s overall strength, increases its chances of success, and positions it for sustainable growth in a challenging and often competitive business environment.

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