MBA Mondays Series: The Board Of Directors
John Revay sent me an email suggesting I write a post on The Board Of Directors. I've got a better idea, a whole MBA Mondays blog series on this topic. I have come to enjoy the series format for MBA Mondays. It works well.
So I will write a a few posts on this topic:
– the role and responsibilities of the Board Of Directors
– how a Board Of Directors is selected, elected, and evolves
– the role of the Board Chairman
– Board chemistry and why it is so important
– Board meetings, how to make them work well
– Board committees – audit, comp, and governance
If I'm missing something important, please let me know in the comments.
Then I'll invite several guest posts. I have a few people in mind who I've come across over the years who know a lot about this topic. I'll probably end with three or four guest posts.
It should be a good series. I'm looking forward to writing it.
I hope you ask JLM – he’s already written a post, I reblogged his comment on your Bored of Directors post here a while ago http://www.startupboyo.com/…
well he just did one. let’s see if he volunteers. he is really good on this topic.
you can never have too much of JLM’s wisdom…
Rethink. This pivot necessitates whole new approach to making the sausage.
Drugs are bad.Are you testing William & Shana’s moderating filter?
Its not their filter. Its mine. They help me manage it though and I really appreciate their help
I’m starting to wonder that myself.
I was in the air. Just landed at lga. Her comments seem a bit strange, but she is legit. Let’s see how this unravels.
Legit Indeed. Thank You!
No prob. You’re catching up with old comments. I appreciate that.
In no small part thanks to you 🙂
I like this – upper AND lower case! – abstract-feminine Fake Grimlock style.
I read it as poetry and performance art.
That is A Nice Take/Thank You.
Good series. I would add one about how the Board’s role & composition evolves depending on the size & status of the startup. From the 1-2 person stage to 5-6.
yeah, i sort of mentioned that in the one where is said selected, elected, and evolves
Dudes. Top Aloneness Is Necessary Prop for Pubic.Every one who knows knows that It Takes A Fuckng Village.No worries.You assume your every utterance is read? How to be sure?Alsonduden-I need an Excel course at the least – no power grab here
i don’t understand this comment emily
Not even Emily does.
A bot, you think?
Looks like a spam bot. But Emily ahas posted rationale comments before. Unless the avatar is hijacked?
if she’s real, i’m not confident that she would pass the turing test.”I sm not a bot. I am confused”that’s what a bot would say.awesome video of AI vs AI:http://www.youtube.com/watc…
Love that video, caught it a month or two back.
Leave her alone.I like cranky.
No harm, no foul rule here
I think @chrishuntis:disqus is right 🙂 ..ive been thinking the same thing for days now.
BTW – if she’s a bot (who knows)… I don’t think she’s a spam bot. — maybe just a conversation bot.In any case – as long as she doesn’t start spamming I say we leave her be like @jasonpwright:disqus says 🙂
Pop up her “activity” by clicking the avatar. Let’s just call a spade a spade here.
yeah me neither. 🙂
Surreal board meetings would be cool.An existential approach would make a damn sight more sense than many of the farcical ones I have participated in…
That was so oblique I missed it too.
everyone has their bot moments?
I’m saving that one 🙂
good idea 🙂
lol it seems to be so.
awesome idea.maybe this is a subtopic under The Role or Chemistry, but one thing people tell me Boards (and VCs) are good at is helping with the “lonely at the top” condition. they have the experience. would be great to see that human aspect mentioned.on another note, why does disqus take ~30 seconds and up to load? so slow! because i’m in europe?
it could be the addition of the audio widgetif this persists, i will take it downthanks for letting me knowon the subject of lonely at the top, boards can help but remember that the CEO works for the boardso your boss is sometimes not the best one to helpi recommend coaches for that reason
ok. i’ll let you know in a week or so if i keep getting this or not.probably you’re right. the boards fitting my comment are likely very politically related to the CEO and not his truest employer/ challenger/ regulator, etc. its a cultural thing. over here people wouldnt get coaches either. got to think this further.
looks like it’s disqus.(image from chrome developer tools attached.)
It’s slow on mobile as well. No doubt we’ll see Disqus modify their stack as they grow (read a couple of good posts on their blog about their architecture)
scaling is a ‘rich man’s problem’ (good problem to have).not doubt they will improve. may be on a bit of performance treadmill at the moment, though: as they grow they have to keep on changing architectures.
alright I love this shit so I am going to chill out and see my Allen and revisit. Need ti reassess – I thought we could gallop past the partisan bullshit.
While on the subject… My Discuss window does not scroll when adding a new comment. After a couple of paragraphs I can’t see what I’m typing. If I go back and edit I get the scroll bar.
mike, it happens to me too when i’m unlucky enough to be on IExplorer (i know, i know)same to you?
I get this too in Firefox. I end up typing my comment in notepad and pasting it in to the comment box.
After pasting you will have to go in & remove some returns.
the user is always right. they should fix it.
The challenge of getting rid of board members? When to hold them? When to fold them?
ahhh. that’s a good one. i think i will add that to the “evolve” post. having resigned from many boards myself, i think the best answer is similar to a dinner partyleave before you are asked to go!
oh ..thats an interesting topic ..hearing from people who themselves have been fired from boards ( maybe even you? ) …lessons learned and stories of personal growth.
Of course, Fred didn’t mean at all that the rule — leave before you are asked to go — should apply to CEOs. Certainly, absolutely, positively not! Of COURSE not! I’m already terrified of having a Board. If I ever thought that the rule applied to a CEO, then ‘terrified’ would be an understatement.Fred’s already made clear that the CEO works for the Board. How the heck is a human CEO going to please enough of the Board without walking on water in warm weather?
:)I like that you added “in warm weather” on there 😉
sage advice for all situations.
I don’t have to pay for this information, which is a good thing because I need it and couldn’t afford to pay what it’s worth. Wow!
Maybe tangental but Advisor and Board Members add different value. As a follow-on possibly.
consider that what you had at the timer was broken – rethink everything
Yup, great suggestion – having good clear delineation between these two groups if possible. I often thought of your Advisory Board working w/ you on the product or service (think tactical), and your BOD being more strategically minded.
That’s not my experience John. Strategic and tactical aren’t the distinction as much as one has a legal responsibility, the other not usually so. Advisors, at least how I serve, are there definitely for long term guidance.
A lot of times a good advisor knows the company better than some Board members and can speak more directly especially in private co Boards.
So true. Job is not to monitor from afar. Especially with segments like marketing and distribution, it’s a iterative process that requires more touch points.
Thanks Arnold – well articulated re: legal responsibility, Comparing Advisers to Directors; some thoughts – Internal/ External, Open/Guarded or Cautions.I have been thinking about starting a company and thought of what the initial board might look like, until there was much outside money – I am assuming my advisers (people that I know and trust) – might be Directors as well at least initially.I have seen some situations where the advisory board is comprised of some customers/users.Thank you again
+1 for Board Directors v. Board of Advisors: characteristics of each, differences, value of each. That would be a great post either in this series or afterward.
Agreed. Lots of startups (ours included) & incubators seem to be quite focused on advisory boards. It would be great to hear about how to make them effective.
Maybe a little different, since he was talking primarily about public company boards of directors, but Warren Buffett wrote about his criteria for selecting directors several years ago.
Great read, thanks for the link Dave
the book ‘The Essays of Warren Buffett: Lessons for Investors and Managers’ takes a deep dive into the subject, also.http://www.monitorinvestime…
I’ve got the hard copy of it. Worth reading. Some good high-level stuff on the challenges of accounting in it too (how there’s no perfect system).
agreed. got it in paperback, also.
Great line: Picking Board Members like trying “to stock Noah’s ark”. What a disaster. Thankfully it would apply mostly just to big, public companies.
guys. consider this:I sm not a bot. I am confused- global everything at tipping point in every way- knowledge of
Its the love child of @FAKEGRIMLOCK and @horse_ebooks. awww… so cute.
🙂 Love You Too.
Is this a manifestation of Zynga zyndrome?
yes. i am so sad.
human rights lawyerpro bono class actioncorporate failure of duty of carepsychological, emotional, mental harmI’m waiting for a progressive society to be the first to enact social legislation in the age of the web. We see Iceland making proposals for overall constitutional change to old institutions, but in time I expect that further more radical clauses will need to be brought forth to combat the social “evils” of our engaged networks life.Thinking about Carlota Perez, there was the mass automated production phase. Cars became ubiquitous, and yet manufacturers was not held accountable for the pollution and degradation of the environment caused by their products. That cost was kept off the balance sheet and visited upon wider society in the form of health problems and medical care costs. I wonder in the digital age if societies will decide that equivalent digital distress should be the responsibility of the corporations distributing the web product or service to unwitting users?
I am afraid, tho I have suffered at the hands of the Social beasts, that we cannot prosecute Facebook and its ilk.
Fred- how about something on the Series A director (who may be the vc or angel who lead the first round) and their responsibilities to the other Series A (and common?).
Maybe touching on what the different scenarios might exist that would prevent a person from joining a Board of Directors? I know there’s the obvious of conflict of interest, though there could be grey area there too.. not sure what else might exist. Thanks
The politics of private company Boards and how to deal with it would be most helpful.
I said a blog series. Not a book! 🙂
The book will be in the comments of this series I bet.
Does the largest investor automatically justify a board seat? How do you break it down by equity if there are multiple rounds/equity investors?
Great questions. Great fodder for the series
Should you form a board before raising money? Do you see any advantage to presenting a strong board to VC or will the VC view them as a possible hurdle to get through?I have struggled with the idea of raising money for retailpitch.com. I believe it is a transformation pivot for brands and retailers and will need money. I have just had less than great experiences with some investors. So do I create a board to hold me accountable or build the business for a bit then raise money and create a board then (don’t you need a portfolio company near your ski house :>)?
Post and rule #1: NEVER GIVE UP CONTROL OF THE BOARD.
Its only possible if you keep control of the company. If you sell 80% to investors you can’t realistically do that
Therefore, don’t lose control of the company.I admit it’s a bit like saying “don’t let your man get between you and the basket”Sometimes it doesn’t work, but it’s still good advice. 🙂
although, I’ve seen people destroy their company before it got off the ground because of this rule. There was just no way that the money they needed and any reasonable valuation of the company crossed paths without giving up control, and the entrepreneur hung onto this rule until the company died. I like control too, but all rules only work under certain conditions.
Corollary: be rich?
The usual explanation for a founder is the choice between (1) no Board (S-corp) and all of nothing or (2) a Board (C-corp) and a part of something. But some of the points about Boards here already, e.g., Board politics, poorly selected Board members, along with the old ‘lack of aligned interests’, suggest the choice can be between (1) no Board and all of something small that still has about as good a chance as ever of becoming something big or (2) a Board and none of something else.There’s also: There is one Board meeting a month. So the CEO spends a week getting the e-mail ready to send the Board four days before the meeting and a week responding to the comments at the meeting. Now his work time directly on the business has been cut in half. Hmm.I’m looking at the millions of US Main Street S-corps, plumbers to pizza shops, that never took equity funding and are stable and accumulating cash in the bank, for a good example maybe in 1-2 years more cash than in a Series A, thinking that maybe the business I’m working on, although it’s not really a Main Street business, could do that, and wondering why I should take equity, form a C-corp, and get a Board.Moreover, my reading of VCs is that the first time they would write a Series A check would be when my business was profitable with the profit growing quickly at which time I am wondering and asking and trying to understand just why then I would take an equity check. I’m not getting it. I’m missing something.As I recall, once Fred wrote here that if a company could get by, or grow, or some such, without equity, then it should. Maybe that piece of advice is really the end of this decision tree, at least for me for now.
Hasn’t Zuckerberg managed to do this?
raised capital from an insanely strong position.
this is known has being an untrusting unscalable founder.pick wisely is much stronger advice, unless your goal is to stay small (valid goal, FWIW).
Covering legal obligations, and ramifications for actions not in keeping with?Erosion of limited liability protection, resulting in personal liability?
the board vs. top non-board management vs. lead investors..what to say and how to say it?
P Drucker wrote about this some on corporations. Management steers the ship, he says. Boards govern whether management/leadership is steering the ship in the right direction. Looking forward to it. Thanks
How about what prospective board members should consider before making the leap? (Or maybe that’s covered in roles/responsibilities…)
Board members should have a briefing on the legal liabilities they embrace when serving on a board. It is scary.
The AICD offers a 5 day directors course which covers this (and a lot of other things). I haven’t done it, but I know a couple of people who have and it certainly opened their eyes. No doubt there are similar courses locally.Link: http://www.companydirectors…
How about managing a Board from the CEO’s point of view?
Well played! The insight from the CEO’s perspective is different than from the Board’s view.
Agreed. Good idea. More generally, it would be interesting to learn more about managing the dynamics of board/management relationships.
Nice work @JohnRevay:disqus . You’ve now got a John’s MBA Monday series.. hahaAnd, on a completely different note (surprise surprise.. :))..I did an interview with Aaron last week as a part of the same series for which I’d interviewed Joanne/Gotham Gal a few months ago and the interview is up.. I thought I’d share.. http://www.alearningaday.co…
great interview, rohan. aaron came across well also.
What NOT to do with your Board of Directors –mistakes you’ve seen and the lessons learned.
Yay, awesome. Thanks Fred.
“How to Manage your Board” – tips to founders to get the most out of your board…
hoping best practices for picking an independent is included in there
lol..totally off topic, but @fredwilson:disqus i really love your “bartender” badge. smart by disqus to add that..or maybe it was your idea, i dunno..
How about non-executive chairman versus an executive chair: pros and cons. Diversity in background and industry experience versus skills and management expertise. Aligning Board with management needs.A good contributor might be Larry Stybel. He’s in Boston, writes on the topic and can be found on Linkedin
+2.One for a great topic. Should lead to some good conversations on AVC.One for a little more structure at AVC. I enjoy the “random” days, but it’s also nice to where we’re going.
Fred – New to your blog (about a month), even newer to the comments, but loving the content. I’m quite interested in how Boards are facing the challenge of managing short-term shareholder obligations alongside long-term company development. Although it isn’t necessarily a conflict lots of firms seem to make it into one.In the context of startups, I’d like some discussion on the age old problem of agency theory. Many startups end up with share-holder/board member/manager all wrapped up into one; how can firms effectively manage these situations as it grows (although I guess that’ll come under ‘evolve’. Keep it up!
“I’m quite interested in how Boards are facing the challenge of managing short-term shareholder obligations alongside long-term company development.”Not my field of expertise, but I’m eager to learn.My usual guess, where I seek being corrected, is that crucial for the long term goals are assets that do not show in accounting but need money that does show up in accounting. So, the temptation is just to stay with the current accounting and, thus, throttle the long term value of the company.
Kind of technical, and infrequently relevant, but still maybe worth a few moments — the legal liabilities of boards and directors and the role of insurance. or lack of insurance, eg that most VC partners get portfolio company board liability and errors and omissions insurance coverage from their firms, but most portfolio companies do not carry any such insurance, leaving CEOs and independent directors perhaps exposed
that is changing steve. many of our portfolio companies carry it now. you can’t get independent directos without it
I’m guessing Brad Feld is on your guest post list.This seems to be a topic that he’s got a lot of energy on..
A great idea. I think a useful topic would be the value a board can provide in between board meetings. Too many entrepreneurs thing the boards is about the board meeting, where those should only be specific touch-points. Too few CEOs know how to fully tap the talent of their boards.
I’m sure that there can be some cases of the Board bringing some much needed expertise. But I am concerned about a clear pattern: Often I’ve seen a project founder work on a project for over a year and then get some outside, fast comments. What I’ve seen is that essentially all the comments had been considered by the founder early on and for some rather good reasons either rejected or accepted, mostly rejected. Net, nearly none of the outside comments will be both new to the founder and worth being accepted. So, there is some question if considering such comments is really worth the, no doubt limited, time of the project founder.The most relevant case of this pattern I saw was when I helped found what is now a major company in the world. We had lots of outside comments, and I am sure not a single such comment was new to us. There were lots of good ideas crucial for the company, and I contributed at least two, but the outside comments were just worthless and, in some cases, from the Board, so bad they threatened the company.This pattern is not so strange: The founder, having worked on the project for over a year, has one heck of an advantage in finding good project ideas over people from the outside making fast comments.So, maybe the valuable outside comments come from areas clearly relevant to the project where the outside person is an expert and the founder is not. Maybe with this first filter, it would be worth the founder’s time to consider the comments.So, a Board might be offended if a founding CEO rejected nearly all the Board’s fast comments, but a CEO should be reluctant to offend his Board. Reason number 1,985,385,992 for a founder to be terrified of having a Board.So maybe the wise response of the CEO is to tell the Board Members: “Great ideas! Super! We really appreciate your wise, thoughtful, valuable input from your great experience and expertise. So that these ideas can achieve their full potential, I will assign them to be studied by a committee of my best, top people. They will study the ideas very thoroughly and extract all the value they can. I expect their report in about 12 months.”Is such political footwork really crucial for a successful company?
Legal obligations? Board independence?
Two more thoughts for your consideration: – Private vs. public company boards – Interplay between executives on the board and other board members
I’d suggest something on the role and value of independent directors.Also, the issues associated with having co-founders/employees other than the CEO on the board.
Yes, both of those are very good topics…..the interesting one is how to transition after you have given up control, i.e. majority ownership. Until then as you can see from previous posts I think you are crazy to give up control.
Jerry – I was going to suggest board composition. You have brought up some of the issues I had in mind.
maybe a whole post on independent directorsthey are so important
I agree. Something that speaks to the importance and teaches folks how to be effective at it. It’s critical to a well functioning board.
Much of this is from the pov of the CEO. Is it also relevant to insert a topic that covers a personal angle from the pov of the board member? Expectations of you, research in advance of meetings, specific business results a member should strive to have on the company over time, etc. All this is very case by case – but there might be a helpful set of 5 top tips, things you should do every meeting and in between meetings to ensure that you are a productive member and not just a soapbox orator once a month.
Boy, I don’t know where to start on this topic – have had so many ‘interesting’ experiences here (ahem) over the years – especially in scenarios where key shareholders are in executive – or pseudo executive – roles, and sit on the board. And in conflict, perchance.Such clear boundaries need defining in terms of exec/non-exec expectations and accountability between board/shareholders.This topic may seem to some outsiders to be a boring back-room legal necessity that is irrelevant to a company’s function, let alone its success, but I am glad (in a perverse way( you have raised this huge topic – and decided to eat it as one would eat an elephant.In small pieces 😉
Some of these have been mentioned, but I think it would be good to cover:1. How a CEO should interact with the Board before, during and after BOD meetings (what should be covered in meetings, who should present (CEO only or a team), if not a team, how to get the team to interact with Directors, etc). I’m sure you already plan to cover this in your Board Meetings, how to make them work well section, but just in case…2) Fiduciary duties (both legal and emotional) for Board members in terms of representing their own interests as equity holders (of a particular class) vs their obligations to represent all stakeholders as a Board member. (Might already be covered in your Roles and Responsibilities post).3) How to find great independent directors and when to look.
Does the Board tend to operate differently when the company is run by inexperienced entrepreneurs?
Looking forward to the series! You might want to specify what phase of the company your guidance is ideally suited for… Eg. Is this pre or post money, and does it matter?
Board member compensation. What’s standard and customary to pay an independent board member?
Thanks, I need this.I’m terrified of having a Board. I don’t know which would be worse, having a Board or not, and here maybe I can start to form an opinion, why it should be better, and how to make it work.
How does a Board of a company that just got a Series A handle a CEO as strong, opinionated, radical, and socially awkward as, say, a young Bill Gates, Steve Jobs, Larry Ellison? There is a fundamental issue here: A big success is a very rare thing. If only from the VC ROI statistics, being able to evaluate the chances of such success accurately at the Series A stage is also quite rare. So, even if a CEO is right, right on the center of the target, and for the right reasons, knows this, and is on solid, rational ground, given that such understanding is so rare, how the heck can any Board also appreciate this situation and still meet their obligations as Board members?That Fred has been so successful should make his comments especially relevant. Or I have to believe that at times some of his eventually astoundingly successful CEOs were REALLY tough to take in some of the Board meetings, yet at least not always did Fred throw up his hands and leave the Board.
Can not wait to read these! Guest posts? WOOHOO!!Free Information that’s incredible! Thanks Fred#HYFR
What about a crowd-sourced post on “How to Communicate with Your Board Members”? You could get a paragraph or so from various CEOs/entrepreneurs/investors, and the AVC community can add their thoughts in the comments.
Board economics: post-seed, post-series a, post series b (inside and outside)?
Really looking forward to reading this series. Information about Board activities is pretty opaque.
Choosing the right people (for the seats that can be chosen). This might seem obvious and a lot was written about it but I wonder what are your less-obvious insights on that.
Important, timely and relevant topic. Another stream to consider is that, anecdotally, female entrepreneurs tend to form boards (advisory boards and/or boards of directors) less frequently than do their male counterparts. There are many reasons why this may be the case: Women worry that their boards will take something away from them (tangible or intangible), tell them what to do too frequently, etc. However, in order for their firms to scale and achieve maximum success, this trend must stop. The 3Q11 edition of Directors & Boards magazine featured this topic. I think it would be useful to your readership — female and male alike — to get your perspective on this topic. Thanks.
Non-profit boards, as well?
Would be interested in hearing thoughts on the role of a VC analyst / associate in a board observer role – perhaps a former analyst or associate who you thought added value to the discussion
there’s a difference between being a “board observer” and simply coming to the meeting, sitting in the back of the room and observingi’m a fan of the latter for young VCs but not the former
CAN ANYONE Explain 360* communication with an example of a company which used 360* communication for their new product or service launch?
Board members before sitting on any board should complete a course in corporate law focusing on the potential liabilities arising from holding such office…I bet that some will immediately step down or not accept the nomination!
You and I both Charlie. Always have had one and like being one as well.
Me three – best thing i ever did.
Never fails to satisfy. Success is in the details of strategic execution. That’s the product that advisor’s bring.