Executive Accountability

This summer I hit my 15 year mark when it comes to working with young technology companies, and joined my fifth early stage company. Depending on your perspective that may sound great or horrible, and honestly depending on the day of the week I feel both ways about it too.

Over time I’ve picked up some informal questions I ask while interviewing. Initially these were questions that helped me understand the founder’s vision for the company — questions like:

  • What does success look like for your company?

Believe it or not, most early stage companies hire without knowing what new employees will be doing. It’s always good to figure out those expectations (or lack of them), so I started asking:

  • What will I do each day in this position?
  • How will you know that I’m doing a great job?

After I wasn’t paid my last couple of paychecks because one company ran out of money, I added questions about company finances and financial transparency to the list:

  • How much money is in the bank?
  • How much cash are you burning each month?
  • How do you communicate the financial situation of the company to the team?

All of these questions have helped me understand how young companies I’m thinking of joining operate and how they see me fitting into what they do. After thinking back on what has happened in each of the positions I’ve worked in, though, I’m adding another to my list:

  • How do you hold yourself and the executive team accountable to make good decisions?

Many young companies lack structures to keep founders and the executive team accountable for making good decisions. Here’s a list that of problems with executive accountability that I’ve seen fairly frequently, but it’s by no means exhaustive.

Total Control

Companies that haven’t raised capital (or that don’t intend to raise capital) typically end up in a structure where the founder or founders have enough ownership of the company to have total control. That’s very often exactly why founders start a company — the freedom to make whatever decisions they want and to learn as they iterate. But at the end of the day, the whole team is building the company and the whole team deserves the ability to give feedback and raise red flags when they see a problem. Everyone’s jobs are ultimately on the line.

Founders operating with a strategy of total control often talk about responsibility being on their shoulders or about how the company is theirs and you just have to trust them. Don’t be surprised if their voice softens a bit when they tell you this.

It’s not wrong for a founder to have total or majority ownership of a company, but founders must accept that as soon as they hire employees they’re giving up total control of the business.

The Ineffective Board

Many companies have almost useless boards. The board meets irregularly and when they do meet there’s a lack of transparency. The founder sees the board as an adversary to be defeated, rather than a group of trusted influencers for the company. You’ll often hear executives with ineffective boards mention that board meetings are a waste of time.

If you have shares as an employee of a young company, the board should be supremely interesting to you as an independent group protecting your interests in the company against bad decisions by the executive team. You want to hear about a board that really takes its time and works hard to ensure the executive team is doing its best work.

The Silencing Effect of Equity

Equity in a company can have a silencing effect on the team. Here’s how that usually works:

  1. The company issues options or restricted stock with a vesting period and other purchase terms, typically with a contingency that if an employee leaves the company or is fired they have to exercise or void their equity.
  2. Some time after equity is issued the executive team makes a decision the team disagrees with.
  3. The team pushes back a bit.
  4. The executive team says the decision is final. They often include a warning about how they’re totally in charge, how this is the right decision, or any of the other lines of thinking mentioned in the section about total control above.
  5. The team decides that they’d better not rock the boat because it could mean losing their job and all that equity that they’ve worked hard for but that still isn’t fully vested (or that they can’t afford to exercise in the case of options).

I’m not totally sure how to solve this problem, but I think rewarding stock as a reward for great performance after the fact could be one way to help handle the issue.

Not Really Listening

Some executives have no issues with transparency, but still don’t actually listen when feedback is given. It’s pretty easy to imagine what happens next — the team stops giving feedback and ultimately knows that the transparency is worthless, except maybe as a warning sign of when to bail out. That lack of response to feedback ultimately ends up with the same outcome as if the feedback had never been given.

Back to the Question

It’s important that founders and executives know that what they’re doing is visible and that they’ll receive clear feedback on what they’re up to from other rationally thinking humans, whether it’s the team or an outside advisor or board. So back to the question:

  • How do you hold yourself and the executive team accountable to make good decisions?

There’s no right answer, but there are many clearly wrong answers. Answers like:

  • “We just make great decisions.”
  • “We understand that ultimately success is on their shoulders.”
  • “Failure’s the ultimate accountability.”

are pretty clear signals that you should be on guard. You’re dealing with someone who hasn’t set up much accountability for themself.

If you hear answers like:

  • “We meet with the board of directors monthly for a few hours and discuss all major upcoming decisions and the results of past decisions.”
  • “We communicate openly with the team and actively seek their feedback about decisions.”

you’ve probably found a company that’s on the right track.