The role of a board observer is used in many board rooms - a board observer is an individual who attends the board meeting to observe the proceedings and provide guidance but has no voting rights. Observers are often appointed by investors, such as VC and PE firms, that have invested in the company.
The Role of Board Observers
The primary role of a board observer is to offer input and advice to the board of directors drawing on their expertise and industry knowledge. Typically, board observers are industry experts who provide valuable insights on market trends, technological advancements and other factors that may influence the company's operations.
The Advantages of Board Observers
One significant advantage of having a board observer is their ability to offer a fresh perspective that board members might lack. This is particularly valuable in the tech industry, where constant innovation and disruption are the norms.
Board observers can provide input on emerging technologies, shifting consumer behaviours and other industry trends that may not be immediately apparent to board members.
A good board observer enables investors to remain involved and engaged in the company's operations without exerting direct control. Observers can relay regular updates to investors ensuring their interests are represented at the board level.
However, it is crucial to note that board observers do not bear the same level of responsibility or liability as board members. They are not legally accountable for the board's decisions and do not have fiduciary duties. As a result, they are generally not involved in the decision-making process and lack voting rights.
Success Stories
Airbnb
In 2011, venture capital firm Andreessen Horowitz invested $112 million in Airbnb and appointed partner Jeff Jordan as a board observer. Jordan provided valuable insights on consumer behaviour and industry trends, contributing to the company's growth. In 2017, Jordan joined the board of directors, continuing to offer strategic guidance.
Slack
In 2018, Slack appointed Sarah Cannon as a board observer. Cannon, a partner at Index Ventures, an investor in Slack, offered insights on market trends and industry best practices helping Slack remain competitive. In 2020, Cannon joined the board of directors.
Spotify
In 2014, Spotify appointed Shishir Mehrotra, a partner at venture capital firm NEA, as a board observer. Mehrotra provided insights on consumer behaviour and market trends, aiding the company's expansion into new markets. In 2018, Mehrotra joined the board of directors, where he continues to provide strategic guidance.
These success stories highlight the valuable role that board observers play in the growth and success of companies. By offering industry expertise and insights, board observers help guide the company's strategic direction and ensure competitiveness in a fast-paced, evolving market. When board observers transition to board members, they bring even greater value, leveraging their expertise to drive meaningful change and innovation.
A good board observer can play a critical role and contribution to a company’s success. Their insights and guidance can help steer company growth and purpose and maintain competitiveness. When they become board members, they amplify their impact, using their industry knowledge to foster innovation and drive strategic decisions.
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