Board.
For an example of an Internet board headed in the right direction, look at eBay (EBAY). Its size is right: seven directors. But its structure is not quite ideal: Directors serve staggered three-year terms. Only one-third of the directors can be voted out per year, effectively insulating the board against swift intervention by disgruntled investors if the company underperforms.
The five outsiders on the board outweigh the insiders, and they are beholden to neither the company nor its management. The outsiders comprise senior execs from Club Mediterranee, Intuit (dossier), Benchmark Capital (dossier) (an investor in eBay), Charles Schwab (SCH) and Starbucks (SBUX); the insiders include eBay's founder and chairman Pierre Omidyar and CEO Meg Whitman.
Three directors - Omidyar, Whitman, and Benchmark founder Robert Kagle - have huge personal holdings in the company. The others bring diverse experience in running other companies that have made a great deal of money for their investors. Ebay's board gets good marks on size, supervision and stakes. The capital market unequivocally demands great boards. It tolerates deviance from custom when a company's performance is stellar or its scale is modest. As Net companies prosper, they will inevitably feel the same demand. Better to create a great board now before the Street tells you to do it.
Michael Useem is professor of management at the Wharton School of the University of Pennsylvania (dossier) and director of the Wharton Center for Leadership.
