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Startups on overdrive to induct non-executive directors

Raju Reddy grew IT services company Sierra Atlantic from scratch to a 6,000-employeestrong company and sold it to Hitachi Consulting last January. A little over a year later, he boarded online ticket booking startup Red Bus in a new role – as a non-executive director with the specific charge of guiding its CEO Phanindra Sama. “We were looking for an expert with the experience of scaling up a business,” says Sama.

Many startups and small and medium enterprises (SMEs) like Red Bus, searching for high-calibre non-executive directors, are now tapping into a rich pool of foot loose former entrepreneurs, retired managing directors and vice-presidents. They are also finding good hands from among some successful managers who have recently stepped back to enjoy the slower life.

“Non-executive directors specially get hired now (in the downturn) because they can be picked up without paying top dollars,” said Hastha Krishnan, director for Randstad India. She looks after the firm’s executive hiring segment. Salaries range anywhere between Rs 25,000 to Rs 2 lakh on a per hour basis.

Many startups also woo non-executive directors with a mix of equity and cash. Equity offered can go up to 1 per cent of the company for devoting two days a month to one board meeting a quarter.

Randstad has placed one non-executive director every month for the last four months in SMEs and the shortlisted ones are from senior management at Wipro and Infosys. “It keeps them engaged, salary is good but less than what they would have earned at their previous firms,” said Krishnan.

Startups and SMEs sometimes struggle to attract top-notch talent into fulltime director positions. But tapping into experienced talent on a part-time basis is paying off.

“Non-executive directors would prefer to work with companies that have limited time commitment,” said James Agrawal, consulting director and head of BTI Consultants, executive search firm of Kelly Services.

BTI has hired non-executive directors for four companies in the last four months. These included startups that operate in sectors like investment banking and retail financial services. They also placed a director for an e- commerce firm that launched a portal to manage takeaways from restaurants. The fourth company, which picked up the non-executive director, was a manufacturing firm. These companies are based out of Mumbai, Bangalore and two of them out of the NCR region.

Young startups, backed by venture capital money and goaded by it to scale up fast, have a pressing need for experts on the board. “As most of the board positions are taken by venture funds and the founders, they are looking for experienced professionals with functional or area expertise (to join as non-executive directors),” said Anshuman Das, Managing Partner, Longhouse Consulting, which has filled 10 such positions in the past few months.

Sharat Potharaju, co-founder and CEO of Mobstac, which converts standard websites into mobile-ready versions, is on the look out for an Advisory Board and specifically needs someone with experience in core marketing. The company, which was founded in 2009, had K Srikrishna, executive director at National Entrepreneurship Network, on their advisory board for around a year. “He gave us direction when we were just figuring our way around,” said Potharaju. “He also introduced us to our venture investor, Accel Partners.” While Srikrishna still provides mentorship and advice, he is not on their advisory board in a formal capacity. “Now we want functional experts,” Potharaju said.

Traditional SMEs keen to evolve into modern corporates are also feeling the need for such non-executive directors. Companies looking to list on the stock exchanges soon also need independent directors to conform to Sebi guidelines.

The SMEs who come to him searching for board members are mostly traditional businesses that want to use technology to reach out to new markets and also to modernise, said Das. The consulting firm is working with a family-run wealth management company that wants an independent board member who will help them leverage the Internet to grow the business. Das declined to name the Rs 300 crore company.

Longhouse has worked with Internet, mobile and healthcare startups in recent months. He found two specialists—one a UK-based doctor and another, the Dean of a well-known international medical university—for a healthcare startup. Entrepreneurs have traditionally tried to recruit such directors and advisors through personal contacts and referrals, but they are now increasingly turning to professional help.

With the increase in early retirements, the pool of industry specialists has expanded. “This talent pool of retired professionals has increased because the number of people who have retired before the stipulated age of 60 has been on the rise in the last two years. The demand is to get them when they are in their 50s, and those who have retired for few years are not always the most preferred,” said K Sudarshan, managing partner for EMA Partners in India. He is in talks with the managing director of a consumer company and is asking him to join a much smaller consumer firm as a non-executive director. EMA Partners has placed around 7-8 non-executive directors in the last 6-7 months. Another one is for a company in the energy sector. Yet another is in the telecom sector for companies that provide value added services.

Senior managers fancy such a role because of the creative freedom attached to it. “They would not have got this opportunity in their previous organisations where they have to follow (rigid) processes. But startups have a clean slate,” says Shiv Agrawal, managing director of ABC Consultants.

Such postings though are not without some glitches. Mukesh Bansal, cofounder of e-tailer Myntra, had taken on a well-known US-based professor as an advisor on board. However, last year he decided to not renew the contract as the busy professor was not able to travel to India.

Serial entrepreneur, Mukund Mohan, was a non-executive director for six startups, but resigned from all of them late last year as there was just too much paperwork. “In the US, I was on the board of eight startups, but there the regulations are much simpler so it is not as time consuming as it is in India even for non-executive directors,” Mohan said.

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