Me and my shadow board: Most start-ups increase their risk of failure by the way they govern themselves. But there's a better way. (First Person).

Many start-ups today are doing a high-wire act with their governance arrangements -- thrilling to watch, but not very smart.

Good governance can help startups make better decisions and, when things go wrong, improve their chances of survival. Yet most startups, particularly dot-coms, create small boards populated entirely by management, industry insiders and venture capitalists. Conflicts of interest abound, diversity and relevant experience in other industries are lacking, and the boards are often actively involved in running the business. The directors tend to think alike, promoting a false sense of security in an ever-changing world.

One solution to this one-sidedness is to create a shadow board. Not to be confused with traditional advisory boards, a shadow board's aim is to tap an unaffiliated and seasoned group of advisors who know how to manage growth intelligently. The shadow board has no vote, but rather the opportunity to influence the statutory board.

Building the Shadow Board

To be effective, shadow boards need to have the right people, the right information and the opportunity to contribute at the right time. Consider these guidelines for selecting your shadow board:

* Build a team. An ideal shadow board will ask the tough questions in a collegial manner. They will have the diversity of backgrounds, skills and perspectives needed to meet the challenges posed by today's rapidly changing marketplace. Think about your strategic plan, and consider what skills are needed now and what skills will be needed in the future.

* Focus on personal qualities. Traditional board members tend to be leaders who are used to having their own way. Therefore, it's important to have some playmakers on the team who have the skills to draw people out on the issues, encourage dialogue and keep everyone on the same side of the table throughout.

* Tailor the board size to your needs. A more complex company may need a larger shadow board in order to include the necessary skill sets, but the shadow board should not be so large that it prevents meaningful dialogue. The key is accessibility, and that need not be formal, face-to-face meetings.

The Information Imperative

No matter how good the people, they will not be much help if they don't have the right information. Knowledge is power, and the company's leadership must equip shadow board members with sufficient information reflecting all sides of the issues -- and do so well ahead of meetings, so that instead of coming to listen, they arrive prepared to discuss issues and share opinions.

The shadow board and the statutory board exist independently, but they should also regularly meet together so the shadow board may provide advice to the statutory board.

While good governance is not the antidote for all the risks of new ventures, it can help start-ups perform better on the high wire and provide a safety net by giving them more time to correct their mistakes and get back on the right track.

Jon J. Masters acts as a seasoned advisor to CEOs and boards of directors on governance issues and board dynamics. He is a senior member of the corporate governance practice of Mercer Delta Consulting, which works with CEOs and boards on designing and leading large-scale change. He can be reached at [e-mail].