Australia’s startup boards are predominantly recruited through the referral networks of founders and investors — most of whom are men. This lack of diversity and formal recruitment processes could be holding back emerging businesses, according to a new report from KPMG.
On average, startup companies have four members sitting on their formal board of directors, typically composed of executives and investors. Only 38 per cent of boards have female members, and these only tend to have one female member on average.
Released last week, The Startup Board Report compiled by KPMG High Growth Ventures and Think & Grow is based upon in-depth interviews with 26 startup board directors in Australia, the US, the UK and NZ, and a survey of over 70 Australian startups.
According to the research, 65 per cent of start-ups don’t have a formal recruitment process for board members and 92 per cent of startups have board members who are external investors in that startup. Just one in four Australian startup survey participants (26 per cent) have independent, non-executive directors.
Board members were most commonly found via the founder’s networks, both professional (58 per cent) and personal (27 per cent). The next most common sources are venture capitalist referral (33 per cent) and via referral from other board members (28 per cent).
Only a small minority (8 per cent) use a formal recruiter to search for candidates. The report argues this limits the pool of suitable candidates within a founders contacts could have a negative impact on the startup’s ability to grow.
The absence of female members of boards is partly driven by a shortage of women investors (most new board members are added following funding rounds) and lack of referral of female candidates.
According to the report, the majority of startup boards do not have any diversity targets in place for board recruitment and selection. Diversity at board level — be it age, gender, ethnicity, skills or experience — isn’t considered until further down the track.
From the report, Lauren Capelin, Head of Venture Community at Reinventure, explains, “We need to speed up the process of designing diversity into our country’s startup boards at a much earlier stage, not only to avoid the systemic challenges that will arise from the current dynamics at play but also to give our startups the best chance of success through access to independent guidance and valuable diverse perspectives.”
“This is about more than incrementally increasing representation of women in technology and startups. It’s about the huge opportunity to shape the future of Australia’s traditional industries and create the next generation of public companies, with the benefit of a diverse board at the helm from the outset.”
The consensus among the prominent directors interviewed for the report was that diversity of thought and background was essential for effective startup boards. Another key takeaway was the imperative to adopt a professional approach to sourcing, managing and compensating board members. Currently, only half of startups compensate their board members.
Amanda Price, head of KPMG High Growth Ventures said, “For startups, boards can play an important role beyond governance, by helping startups scale through providing key experience, perspective and access to individual board members’ personal networks.
“Founders who have the right support around them are far more likely to succeed than those who don’t – and boards, formed well, can have a transformational impact. This research has uncovered a massive opportunity to re-write the playbook for how Australian startups build, manage and refresh their boards.”