What You’re Getting Wrong About Startup Boards

…Dedicated to the memory of the late David Ladd, my best and favorite board-member ever.

“Today is a great day. I am going to a startup board meeting”… said no one ever.

And yet if you are an investor or a founder, this is part of your life, and a key way you make an impact on companies you’re involved with. Let’s spend five minutes discussing what this means and how to do it properly.

This post is the first one in a series about startup board meetings,

The Basics — That Almost Everyone Gets Wrong

You may have been appointed to the board to represent your VC or your investor group. You may have been appointed to the board because you are a founder or an executive. You may have been appointed to the board as an independent professional expert.

Whoever appointed you, your duty is the same. Your duty is to the well-being of the company, i.e. all the shareholders (and in some ways — all the stakeholders). That is THE LAW (in most cases — Delaware law). You have a Duty of Care and a Duty of Loyalty — to the company. Even if you are an “Interested Director” you are to apply the same judgement, care and logic as if you were not representing an interested party. The only exception is when the company is insolvent — in which case your allegiance switches to the company’s creditors.

Granted — as a thoughtful director, you should be able to state the position of the shareholders you represent. For instance if the matter at hand is a transaction that is beneficial to the company but as a VC you are not interested — you should express your judgement (“it’s a good deal”) but also the predicament (“but it’s not good for us, so the VC I represent may block it through its veto right if the board approves it”). But your loyalty, should this come to a vote — is to the Company.

Usually, this manifests itself in subtler ways — should the company seek a buyer or double down on risk-taking? Should the company acquire another struggling startup (that you happen to have an interest in?) Should the Founder-CEO be replaced with the ambitious CTO? Personally or as a shareholder you may have a preference. Your job, however, is to judge what’s best for the company — express, and vote, that judgement. That is the Duty of Loyalty.

Loyalty, Molly Edition — By Gary H.

Raising Companies Is About Caring

Come Prepared

To provide good governance and a real ability to make decisions, you have to stay informed. You cannot expect to stay informed by “coming to the board meeting”. You cannot expect to make good decisions on the spot, and even if think you can, the other directors can’t. Serious decisions cannot be made by ingesting, processing, debating and deciding over the course of two hours.

Your job is to engage with the CEO and others regularly. You should come to the board meeting after you already know everything that will be discussed, and what is your position. A good CEO orchestrates this, but she / her can’t do it without you giving her your time and attention.

“The board is a play whose script was written beforehand” — Jacques Benkoski, USVP.

Engage Continuously

As you engage with the company, remember where you have an advantage and where you don’t. If you’re a VC, your contacts and your deep pockets allow you to open doors, get information and access to people. Your experience and wider perspective allows you to see a bigger picture. What they don’t give you is better insight into how to manage the company, its relationships with customers and partners, employees, etc. Your position of power will push you towards micro-management. You must learn to resist the urge. First — because you don’t really know better. Second, because someone else will need to implement the decision, so they better stand behind it.

Resist the urge to micro-manage.

Feedback is good when provided the right way. The Board meeting is not a feedback session. You can literally have a feedback session after every board meeting — after the executives and other directors left the room, you can convey constructive feedback to the CEO. In fact — you should, whether it’s positive or negative. But not during the meeting.

Extend your duty of care beyond critique. Using your contacts and your influence to open doors and attract customers, talent, and funding to your companies is the primary way you can help.

Care — are you the kitten or the hound in this image?

Understand Your Impact

As a director, what you say and what you do affects founders and executives profoundly. When executives present their plans and goals to you, they are effectively committing to them, and are more likely to deliver. When you commend or critique, the effect is more profound than other managers in the company. When you state something about the company’s strategy, market position, financial status — your words can have profound impact, whether you were being thoughtful or not. I have seen CEOs disregard serious offers from strategic partners because some board member said, months before, “never come to me with an offer under $X”. I have seen employees flee a company because a member of the board said the wrong thing at the wrong place. I have personally made strategic mistakes because I was taking board members’ commitments to a strategy they couldn’t stand behind as investors when it came time to fund it.

You have a bully pulpit — for better or worse.

Prepare to be Sued.

In well-funded companies (say post-A), there’s roughly a 20% chance the company’s directors will be sued by a shareholder or a 3rd party along the way. It’s the way of the world. There is conflict, there is money (and an assumption of deep pockets — especially for investors), there are interests.

  • Make sure that the company has adequate Directors and Officers insurance coverage.
  • Get a lawyer in the room — a lawyer at the board meeting allows you to have Privileged Communications as part of the meeting. When things go to court, this may save you a lot of grief.
  • Most importantly — abide by your duties.
Lawsuit by ThinBoyFatter

Generally speaking, as a director you need to show you held up to your fiduciary duties — the Duty of Loyalty and the Duty of Care.

The Observer

We can’t really conclude this discussion without mentioning Board Observers. This position is not governed by law, but as an Observer you’re typically part of the same proceedings — you have a right to the same information and you have a right to be heard. The only difference is that you don’t cast a vote. The best way to do this job well is simply to do it just as if you were a board member.

You Will Be Remembered

The best VC I know once said to me “90% of board members are net negative, 9% are neutral — sometimes they add value, sometimes they detract, 1% are net value add.”

No matter whether his numbers are exact or miss the mark by a few points, know this — everyone is watching, and your contribution, negative or positive, will be remembered. Just like an elected official, how you bear yourself and how seriously you take your duties has profound impact. Be remembered for your professionalism and good judgement.

this post summarizes my personal perspectives from 20 years of board meetings. Some concepts and ideas were influenced by a talk given by USVP Partner Jacques Benkoski at an INTRO CEO Club meeting and conversations with Maniv Mobility’s Prescott Watson.

The next post in the series will focus on the CEO’s role — how to manage your board rather than get micro-managed by it.

I am a serial entrepreneur, an advisor to CEOs, boards and investors. More about me at Vanguard Enterprises.

I help startup CEOs be 10% better. Founder / CEO of WorldMate (acquired by CWT), Desti (acquired by Nokia). Did time at a VC, and a startup studio. Opinionated.

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