In the early stages of building a startup, speed and flexibility are the key drivers of success. However, this landscape gradually changes as investors come on board and the business expands, raising a fundamental question: How can a board of directors be formed in a way that balances founders’ control with the benefit of external expertise?
Board composition is one of the most important pillars of sound corporate governance. It is not a regulatory burden on startups, but rather a strategic tool that supports sustainable growth and strengthens investor confidence.
First: Founders and the Need for Agility
In the beginning, founders make decisions quickly—late-night calls, informal meetings, and instant messages. This agility is often the secret behind early-stage success.
For this reason, founders typically prefer to retain the majority of board seats to protect their vision and ensure fast decision-making. This approach is understandable and legitimate. However, limiting the board to founders alone may restrict diversity of perspectives, especially when facing new challenges such as:
- Rapid scaling and growth,
- Attracting and retaining executive leadership,
- Risk management and regulatory compliance.
The goal is not to give up control, but to share it wisely.
Second: Investors and Their Oversight Role
Investors view board seats as a means of oversight and accountability, not as a way to interfere in day-to-day management. Venture capital funds and institutional investors typically request:
- One seat on the board, or
- Observer rights.
This enables them to participate in key strategic decisions such as:
- Future funding rounds,
- Strategic partnerships,
- Leadership transitions.
A good investor does not disrupt operations; rather, they add discipline and strategic expertise.
Third: The Importance of Independent Directors
As startups mature, appointing independent directors often marks a true turning point. These directors:
- Have no direct financial interest,
- Bring deep experience in areas such as law, finance, or the relevant industry.
In Saudi Arabia and across the wider MENA region, more startups are adopting this model. The presence of an independent director enhances:
- Balance in board discussions,
- The quality of strategic decisions,
- Investor confidence—especially ahead of major funding rounds or exits.
This is not a mere formality; it is a clear sign of corporate maturity.
Fourth: The Legal Framework in Saudi Arabia
Under the Saudi Companies Law and the Corporate Governance Regulations, the establishment of clearly defined boards is encouraged even for startups, including Simplified Joint Stock Companies (SJSCs).
Key best practices include:
- Clearly defining the board’s powers in the Articles of Association,
- Identifying reserved matters that require shareholder approval,
- Maintaining transparent and well-documented records of board meetings and resolutions.
These measures go beyond regulatory compliance; they help build trust with both local and international investors.
Fifth: How to Get the Balance Right
An effective board is not measured by its size, but by its balance. A board that can:
- Empower founders to execute their vision,
- Reassure investors that the company is being managed responsibly,
- Benefit from independent voices that add objectivity and a long-term perspective.
When this balance is achieved, decision-making becomes clearer, and the company’s ability to grow steadily is strengthened.
Strong governance is not a burden on startups—it is a competitive advantage. Building a balanced board from the early stages sends a clear message that the company is serious about its future, respectful of its investors, and committed to sustainable growth.
Getting board composition right is not the end of a phase, but the beginning of a more mature and professional stage of growth.
