The Board Of Directors: Role and Responsibilities

This is the first of a series of MBA Mondays posts on the topic of The Board Of Directors. I want to dig into the role and responsibilities of the Board as a way to kickoff this series. But first a few disclaimers. I am not a lawyer and I am not giving out legal advice on this topic. I am a practicioner and am telling you the way I see it and what I've learned over the years. I think both are important perspectives. You will have to look elsewhere for the legal view on this topic.

The Board of Directors is the governing body for a company. All major decisions will need to be ratified by the Board. You will need the Board's approval to sell your company. You will need the Board's approval to hire or fire a CEO. You will need the Board's approval to do a major acquisition. You will need the Board's approval to do a major financing, including an IPO. On all matters of major strategic importance, the Board will need to be engaged, involved, and supportive.

However, the Board should not run a company. That is the role of the CEO and his/her senior management team. The Board's job is to make sure the right team is at the helm, not to be at the helm themselves. Boards that meddle, that get too involved, that undermine the management team are hurting the company, not helping the company.

Boards work for the company. The company is their responsibility. They must always act in the best interests of the company and its major stakeholders; the employees, the customers, the shareholders, the debtholders, and everyone else that is relying on the company to deliver on its promises.

Some would say that the company works for the Board. But I think that is wrong. The company works for the market (and I am using the word market in all of its meanings) and the Board and the management team work for the company. Every director must put the interests of the company first and their interests second. This is called fiduciary responsibility.

About ten years ago, I was in a Board meeting when management told the Board that they had uncovered significant accounting issues in a recently acquired company. This was a public company Board. And these accounting issues had flowed through to several quarterly financial statements that had been reported to the public. Every Board member who was also a material shareholder (me included) knew that the minute this information was disclosed, our shareholdings would plummet in value. But there was no question what we had to do. We had to hire a law firm to investigate the accounting issues. We had to immediately disclose the findings to the public. And we had to terminate all the employees who had an involvement in this matter.

Things like fiduciary responsibility seem very theoretical until you find yourself in a moment like this. Then they become crystal clear. Directors often must act against their own self interests. They must do the right thing for the company, its shareholders, and its stakeholders. There is no wiggle room on this rule. For directors, it is the golden rule.

The hard thing about being a director is that many times, the right answer is not clear. Should we accept this extremely generous offer and sell the company? Should we ask the CEO to leave the company? Should we go public or wait a few more years? There are no formulas that you can run to tell you the answers to these questions. There is no "right answer." Only time will tell if the right decision was made. And even then, there will be debate.

Debate is what good Boards do. They put the key issues on the table and discuss them. Good directors are deeply engaged in the important issues and they are upfront and open about their opinions on them. They are respectful of the other Directors and listen carefully to opposing opinions. Boards should try to reach a consensus and then act on it. Board should not procrastinate on the big decisions. Boards need a leader to drive them. That leader is commonly called the Chairman. I plan to write an entire post on the subject of the Board Chair as part of this series.

There are many CEOs who want to manage their Board. That is a mistake in my opinion. A great Board manages itself and treats the CEO as a peer and gives the CEO's opinion great weight. But a great Board is not a rubber stamp. A great Board pushes the CEO and the company to make the most of the opportunities in front of the company. It makes sure that the CEO and the management team are pushed out of their comfort zone from time to time. It asks the hard questions that must be asked.

Boards are fluid. They should evolve. Members should come and go occasionally. There should not be too much churn but some churn is good. Board members should not coast. Board members should not treat their seat as a right (even if it is). Boards should always be looking for new blood.

I will end with a somewhat controversial statement in light of the way some of the most successful tech companies are run. Boards should not be controlled by the founder, the CEO, or the largest shareholder. For a Board to do its job, it must represent all stakeholders' interests, not just one stakeholder's interest.

Next week I will talk about how a Board is selected, elected, and how it evolves over time.

#MBA Mondays

Comments (Archived):

  1. JLM

    Well said.  I agree with you more than you agree with yourself.  Well played!

    1. fredwilson

      you better be careful. there were calls in the comments to the introductory post last week for you to do another guest post on this topic.

      1. John Best

        Yes, I second this motion.

      2. JLM

        Be glad to.  Anything in particular you would like me to address?

        1. karen_e

          Someone should definitely tackle Jerry Colonna’s question about the challenge of having board members who are also employees — besides the CEO.

          1. JLM

            Unfortunately I have absolutely no experience w/ this phenomenon and think it to be a bad idea unless you have a very big board and a very big company.

          2. janoisdi

            I agree (bad idea) for a startup co. based on my experience.  Here’s 3 observations:#1 –  If the “right” management team and board (another topic of conversation:  Picking the right Board, Investors and Terms of the SSA) is in place – then you shouldn’t need a Chairman, or Executive Director seat to influence the strategic decisions of the company.  The Mgmt team’s daily actions and inputs to the board should provide a loud enough voice.  And if the board isn’t giving the team a voice – then there is deeper issues that will remind us why picking the right investors is so important.#2 – As your company grows into different phases – Build the Product, User/Customer Acq, Revenue, etc… the roles of management evolve and the first on the boat aren’t necessary the right seamen for the next part of the journey.  If they have board seats, it leaves little  margin of error in making sure that you select the right Non-Exec board members to compliment your board.  Situations where a founder or sr. mgmt team member with a board seat is asked to move on can get ugly and  cause unnecessary distraction during critical growth stages if not managed well.#3.  For every board seat a mgmt team member consumes, its one less opportunity to augment your Sr. Leadership with another seasoned professional who can provided added value to your company.Just my 2 cents… 

          3. Carl Rahn Griffith

            There’s certainly a lot more than semantics to Exec/Non-Exec titles/roles. Often a cause for confusion.

        2. Matthew Lenhard

          I would love to read about how the board of directors goes about their decision making process and how much say the CEO has in the final decision.

        3. ShanaC

          Running a board.

        4. jason wright

          rectangular or oval, oak or mahogany?Board meetings – do they by law always have to be in person, or are virtual meetings using modern comms an acceptable substitute? 

          1. Antone Johnson

            If the law in the state of incorporation permits it, the company’s Bylaws can provide for meetings to be held by phone or videoconference.  A common arrangement is to hold regular (say quarterly) Board meetings in person, plus special meetings by phone or using audiovisual conferencing tools from time to time when the need arises.The most extreme case I can remember was calling a telephonic Board meeting at 2 am on a Sunday — something a CEO normally would never inflict on the directors — to approve the sale of the company for $650 million.  You only do that once.

        5. fredwilson

          how about the CEO’s role on the board? that’s something i’ve never experienced firsthand

    2. Carl Rahn Griffith

      When one thinks of the dramas that unfold in and around most Boards, it is somewhat surprising there is not more intelligent drama – or dark comedy – made on this topic. Done right, it would be both entertaining and educational.For too long it – The Board – has been seen as something akin to a private-club/dark-art. I am sure this series of discussions will go some way to changing that perception. 

      1. JLM

        I agree completely and I also think there is much to be improved in a company w/ a good Board.

  2. Gorilla44

    I do not believe that board meetings should be too contentious. As CEO I typically have a lengthy discussion with each board member before a meeting. I will not bring something up for a vote that I know will not be unanimous.

    1. Carl Rahn Griffith

      Indeed. Using such gathering for a heated ‘debate’ is far from ideal – especially as much of the time this may be more personality-driven than actually addressing emotive business issues.A clear agenda distributed to all involved some days before each meeting helps greatly in avoiding such scenarios – as long as AOB is kept on-topic at end! 😉

    2. fredwilson

      yup. One of the things I should post about is how a board should behave out of board meetings. The really contentious debate should not happen in the meetings

      1. Luke Chamberlin

        There is a Japanese business custom called “nemawashi” – literally “root binding” – which refers to binding the roots of a bonsai tree before moving it into a new pot.In business, it means just what you described. Meet with everyone individually and build consensus before the meeting, and then meet to codify the decision. This way everyone saves face, even the dissenters.It is also a sticking point when Westerns try to do business with Japan. They show up to a meeting ready to make their case but the decision has already been made in advance.

        1. sigmaalgebra

          Cute!When I was in grad school, I’d printed out copies of the latest draft of my dissertation and passed them out to my advisors and the Chair (not an advisor, from outside my department) of the committee that had to approve my work.I was home and, before my efforts at running had wiped out my Achilles tendons, was out running about 6.3 miles. When I got back, my wife said that I’d gotten a phone call from the Chair of the committee.So, I cooled off a little from the run, lay down on my back on the bed, and called him back. He had some questions, not very hard, and I gave some answers right away.He noted that one of my theorems was “obvious”. I answered, “Yes it is. But ‘obvious’ is not a proof. So, I wanted to see how the proof went, and that’s good because the proof is just to tap lightly with Fubini’s theorem. It’s good to see why Fubini’s theorem is the key. Also my theorem goes to the heart of the sense, otherwise challenging to make clear, that the stochastic optimal control really is ‘optimal’ in a strong sense, both using the data available and, under the assumptions, any other data also in principle available.” This answer satisfied him.In the end he was a little concerned about one paragraph, so I revised it to make it more clear and then printed and passed out more copies.Then a few days later was the oral exam by the committee. The Chair dominated the exam, and there was only a little questioning from my advisors and nothing from several other professors, invited by someone, to be on the committee.Soon enough it became clear that the real oral exam had been with me on my back on my bed, on the phone, with the committee Chair, after my run! The official exam was as in the Japanese tradition — a show for a decision already made!Cute!Net, the review of my work was too important to be left just to an oral exam and needed to have any difficult issues settled one on one in advance.My advisors and the Chair handled that bit of academic politics beautifully.Important, potentially difficult issues for the Board of a startup might well learn from your example and mine.

  3. awaldstein

    I’ve never worked with a board that was as ‘perfect’ as you describe.Personalities were too big…usually the founder or in a few cases where the company was public, the CEO.I’m hold this up as aspirational and the closer I get to it in the future, the better everyone will be.Really useful. Thanks.

    1. Tom Labus

      No question.There’s always a gorilla in the room.

      1. Carl Rahn Griffith

        I can handle a gorilla.It’s the snakes that worry me.

        1. Tom Labus

          Got ya.

  4. John Best

    I’m glad you wrote about the conflict with enlightened self interest. Issues that concern the wellbeing of the company need to be addressed by the board on behalf of the company, no matter how painful it may be for the board itself. 

  5. ErikSchwartz

    I once had a board member who used to love to shoot his mouth off within the Maine start up community about operational issues/details in the company for various reasons. In most cases he was wrong on his facts. I spent epic amounts of time trying to clean up his messes. I suppose technically he was violating his fiduciary responsibility. But the problem with VC board members is that they are nearly impossible to get rid of.He also torpedoed every outside board member candidate we brought to the table even though we had industry connections and domain knowledge (and he did not) by claiming “If it is someone management is bringing to the table he/she is clearly not an unbiased 3rd party”. We never filled that 5th board seat (which was a problem too).

    1. Carl Rahn Griffith

      Sounds all too familiar, Erik…

      1. ErikSchwartz

        The scariest thing in the world is a BOD member who is trying to raise a new fund and their fundraising is not going well.

        1. PhilipSugar

           Amen Brother.

        2. fredwilson

          or a young VC trying to make partner and worried its not going to happen

    2. fredwilson


  6. John Revay

    Hope you briefly comment on D&O insurance.  Do most of the companies that you are involved in carry D&O.  Perhaps you have a blanket policy @ USV

    1. Gorilla44

       D&O is very inexpensive for small companies – usually much less than $5K/year.

      1. JLM

        $2MM, 75K deductible, $25K annually

        1. PhilipSugar

          We posted at the exact same time, but have the exact same numbers.

          1. JLM

            Because we are both from the real world.

        2. Gorilla44

           I got a policy from Scottsdale Insurance Company (from my insurance broker) for a $1MM/$2MM D&O policy with $1MM/$3MM employee benefit liability and $1MM fiduciary liability for $4,170 annual premium.The major risk for directors is not getting sued by investors but getting sued by former employees for harassment. That happens 50x more than investor lawsuits at private companies.

          1. Gorilla44

             I don’t mean directors harassing employees but employees being sexually harassed or improperly fired or something like that on the job and they then sue the company and the board.

          2. nums

            another important point on D&O … it usually doesn’t cover “covered entities”.  This means they won’t typically cover one Board member suing another Board member.  

          3. JLM

            Looks like two different coverages and I suspect different revenue levels.Yours is more “employment practices” while mine is purely D&O anticipating shareholder claims exclusively.I would like to know more about your policy.  Can you tweet me your email at @jlmtx?  Thanks.

          4. Gorilla44

             Your twitter account is protected. I just tried to follow you.

          5. JLM

            @168eabd0f099d310caf76736f858376a:disqus I just checked and the settings say it is not protected.  Text me at 512-656-1383.  Sorry for the inconvenience.  Thanks.

      2. PhilipSugar

         Who do you use???  Never seen a quote for less than $25k

    2. fredwilson

      we have it at USV and we strongly recommend our portfolio companies get it so they can recruit independent directors

  7. Richard

    Apple and ExxonLucent and AolIn a span of 10 years, the first  group created more than 500 billion in market cap and the second destroyed 500 billion. From an outsiders view the board often looks like a group of figure heads. What was it about their boards that differed? In round 1 Steve Jobs was dismissed from apple. How do you reconcile your last statement with the history of apple. 

    1. ErikSchwartz

      Steve Jobs never would have become Steve Jobs if Apple had not booted him.

      1. Richard

        I recently watched a Steve jobs interview from the mid 80’s. His vision and determination seems identical to that 20 years later. What was it about the boards move that was so prescient?

        1. Dave Pinsen

          I saw an interview with John Sculley, the CEO who replaced Jobs at Apple, and he argued that Jobs’s product ideas at the time he left Apple were not achievable given the technology then available. Maybe there’s something to that.

          1. Tom Labus

            I think he also said the Board should have fired him instead of Jobs.Hindsight.

          2. Dave Pinsen

            What if they had? Isn’t it likely Apple would have developed in a similar way? Instead of doing what he did at Next, Jobs would have done that at Apple; in that case, Apple would have still be in dire straits in 1997, no (considering how low Next’s sales were)? And it still would have taken the settlement with Microsoft, plus the transition to i-products  to resuscitate it, no?

          3. Tom Labus

            No question to below.My point was that events can look different through the rear view mirror of time.That’s all

        2. ErikSchwartz

          What Steve learned between his two stays at Apple was humility and learning to adjust.When the Steve of the mid 80s was wrong, he carried on in the wrong direction.When the Steve of the late 90s/00s was wrong, he adjusted his plan.The place he leaned that was getting next out of the hardware business and getting Pixar out of the tools/renderman business.

      2. Rohan

        Agree. It’s the hero’s journey. A hero lives happily in the original landChallenger shows up, he’s ousted.Adrift, he almost succumbs. But is helped.. and finds strength.Comes back to a place he barely recognizes and makes it his own. Every epic story.. Star Wars, Greek Myths, Indian Myths.And now Steve Jobs….

        1. JLM

          You have to add in NeXT and Pixar to appreciate the full complexity and texture.The guy got canned and went out and made $1B+ on the rebound.Who says there are no second acts?

      3. JLM

        Product visionary v commodity marketing genius — classic confrontation.What did they really need?Both

        1. karen_e

          Love this li’l comment, JLM! So many great businesses are actually a partnership between two people. More classic dyads: the artist and the administrator, the creative founder and the grounded CEO.

          1. JLM

            It is also how individuals grow.  Quickly.I had a partnership with a guy who was initially a mentor, then a partner and then a peer.  It lasted for about 12 years and then we hit the pay window.  Big time.During that time period, I was the operator/builder and he was initially the money raiser.  Then I evolved into the guy the money loved because everything was on time, under budget and the books were perfect.We pissed off a lot of their other clients.It was done during some very tough times when each day was like the first day in combat.  But you get used to it and your slowly prevail.He evolved into the Mr Outside — cruises w/ Jack Welch, et al, while I slaved away.  Truth be known, I had no interest anyway.It was fabulous partnership in which we built a great company along the way.  We solved all the important small company to big company issues like continuity.We hired great people proven by what they have accomplished since then.We survived a big divorce (his) and a deathly illness (mine) and the company just kept rocking.At the end, we sold everything including the indentations in the carpet and went our merry ways.  Getting out completely was just another stroke of genius.It was ying and yang all the way.

          2. Tom Labus




    2. Dave Pinsen

      At a glance, one thing the first pair had in common was CEOs with long histories at their respective companies. Everyone knows Steve Jobs’s history as co-founder of Apple (spent formative time there, despite his exile). Exxon had two CEOs during the last 10 years, the current one, Rex Tillerson, preceded by Lee Raymond. Tillerson has been with Exxon since 1975; Raymond, who retired at the end of 2005, had joined the company in 1963.Another difference is that I can’t recall offhand a bad merger or acquisition by the first pair in recent years. The market cap destruction at the second pair followed ill-fated M&A.

      1. Richard

        Yes. I wonder who amoung apple’s board members saw the genius of the App store (which passed the 25 billion downloads mark!)Do companies make great boards or do boards make great companies?Just thinking out load.

        1. JLM

          A mediocre board with great management will always look better than it ever was.  Sometimes boards are along for the ride because they are, in fact, required by the SEC and investors.

          1. Richard

            You nailed it.

        2. FAKE GRIMLOCK


    3. fredwilson

      i don’t reconcile anything with the history of applethe exception proves the rule

  8. Michael Elling

    “Directors often must act against their own self interests.”  Self interest should not always connote upside, but downside as well.  Then actions taken are always in self interest…AND…positive outcomes cannot be decried by the 90% and media as ill-gotten gains.  So in your example you would say that BoD’s were acting in their “long-term” self interest.  Looking at it this way also ameliorates the sting of those tough decisions.

  9. hesky

    This is a very important topic and a very misunderstood one by most young founders.  In my mind  board meetings are a very helpful tool for as its a forcing mechanism for reflection and thought. If one can have thoughtful people in the board its a great way for management to think aloud about hard topics. In this new world of proliferations of seed level companies with no real boards I strongly suggest to these companies to create a board as a way to discipline themselves to sit back and talk about their business in a different setting every 8 weeks or so. I think it is critical in that early phase ( i m sure many folks in this community will disagree…( BTW  Not sure i agree with the practicality of this statementt “Boards should not be controlled by the founder, the CEO, or the largest shareholder. For a Board to do its job, it must represent all stakeholders’ interests, not just one stakeholder’s interest” – while i agree in sentiment in reality post series B it is controlled by series B shareholders and I don’t see that changing anytime soon 🙂

  10. William Mougayar

    I also like Board members to open doors and relationships for the company that weren’t possible before. There are equally important non-fiduciary responsibilities as well. 

    1. John Best

      Whilst they may not have the same mandate as other teams within the business, they are a team nonetheless, and they have their own skills and attributes to bring to the (board) table. That should totally extend to building bridges that would be otherwise unthinkable.

    2. Carl Rahn Griffith

      This is where the ‘private club’ aspect often becomes a block to such positive initiatives. And if there are – as there often are – opposing factions within the board, any new member who is recommended is suspected of being a friend of the board member proposing them – and paranoia/voting rights/politics/etc goes into hyper-drive.So many egos at work. It’s a miracle many companies function at all…

    3. awaldstein

      Yes…most do that. But in my experience, it is a rare board member who actually becomes a partner or mentor in these activities. To most, its just not their job.

      1. William Mougayar

        I was thinking of really important strategic door openers which are game changers for the company. Especially for younger founders, Board members could be from a different generation and have top connections that are critical for the startup.

        1. awaldstein

          Same is true for advisors as well.

          1. panterosa,

            Arnold and William,I agree to the idea of board members giving shepherding in connections and guidance. And especially to younger founders, which can simply mean first timers, and in new industries.I would hope as much of my board if I had one, though I will shoot to have a kabal rather than a formal board for my upcoming gig. 

          2. William Mougayar

            We’re waiting for your new gig to take shape 🙂

          3. panterosa,

            Soon enough maybe we gather ‘the round table’ again and I show you what’s cooking.Perhaps you are my shadow board! I had many comments from the other evening which sound like a reconvene to me.

  11. Tom Labus

    “Boards should not be controlled by the founder, the CEO, or the largest shareholder”.You need a very enlightened CEO to pull this off even though it’s always better for the company.

    1. JLM

      Sometimes a CEO, particularly in small to medium public companies, is much more experienced in business and board dynamic than individual board members.When this happens, a shrewd CEO ensures that the basic board organization is met and that the board grows into its role.Ultimately, the CEO is going to consciously or unconsciously control the flow of info which is going to inform decisions at every turn.

      1. Tom Labus

        How can a board ensure financial info is non tweaked?Some CEOs are very good at presenting alternate or less real financial views of the company

        1. JLM

          I always have the CFO attend the Audit Committee meeting though I hate hearing that operational issues were discussed. I never attend the Audit Committee meeting.I also have the CFO present the financial info in the Board package including trends in the same degree of detail that I receive it followed up by an executive summary presentation at the Board meeting itself.I never present the financial information.The sanctity of financial info is paramount.  Any violations and someone is getting fired.Under SOx, this is a very serious matter.  A bit easier in a small public company but a discipline that must be followed nonetheless.

          1. Tom Labus


          2. pointsnfigures

            Of course, does SOX mean anything?  MF Global sure would be a great test case.

          3. JLM

            SOx was not anything new for anyone who was running a clean shop to begin with and was another law to be broken for anyone who was not.I remember laughing when I realized I now had to “certify” the financials as I thought I always had to do just that.Can you believe how MFG has disappeared off the front pages?It makes me want to puke.It is why I think public beheadings on the steps of the NYSE  should be within the penalty matrix of the SEC.  And why not? 

  12. Brad

    You may be the most sane financier I have ever ran across.The board needs to be there are a resource and a guide to help the company along. Hold the CEO accountable for what he/sh commits and plans.I will not go in to my experiences, but two boards that I am intimate with have shown me that the board that helps guide and does not rubber stamp is far more effective than the other.Another great post. 

    1. JLM

      The issue of accountability is an interesting issue.  Too many times it is expressed as an element of discipline as if the CEO does not want to do what the Board enshrines in policy.I think a Board is like a navigator — in the cockpit but not touching the steering wheel or yoke (I like plane analogies).There should be collaboration between the CEO and Board like the collaboration between a coach and his team.The watchword should always be — what is possible and how can we accomplish it rather than sternly laying down the law and compelling action with a micrometer at the ready to measure performance.The most powerful performances in life are “coaxed” out of great performers by guileful and skillful mentors, coaches and Boards.Just my thoughts.

    2. fredwilson

      sanity is in the eye of the beholder

      1. Brad

         Maybe I should have said that you seem to be the most sane……

  13. Richard

    In the new workplace, what matters is your contribution not your credentials. Will boards ever catch up?

  14. Rohan

    I love the Board of Directors concept because it works just as well as a personal analogy.We are all CEO’s of Me Inc. We all need to have personal boards who challenge us, ask us tough questions, push us out of our comfort zones. These are role models/mentors who we are in touch with and who are engaged with us. We all need a chairperson on our board. It will be naturally fluid depending on which stage we are in, in terms of our lives and careers. I could go on.. I guess you get the picture. 🙂 The only thing I haven’t figured out yet is how to get a personal board meeting done. That’s been the trickiest bit.. the rest applies beautifully!

    1. JLM

      Why they invented hot tubs.


        FOR BIKINIS?

        1. JLM

          If you start letting your women folk start wearing bikinis, what’s next?Burqas?You have to have some standards plus all that lint getting into the filter?  Bad, Grim.

          1. FAKE GRIMLOCK


          2. JLM

            I was a bit worried that YOU were thinking about wearing that bikini.  Thanks for the clarification.Far be it from me to question a large dinosaur’s cross dressing habits, so good to learn you are still not wearing bathing garb, Grim.

          3. fredwilson

            now now. this is a PG rated blog 🙂

          4. FAKE GRIMLOCK


          5. Carl Rahn Griffith

            WD40 Cocktails?

    2. fredwilson

      they are called Moms

    3. panterosa,

      A personal board meeting should look like a good party. Or as JLM says a hot tub group.I advise many. Several advise me. They all know each other, or of each other. They’d all fit in the large size tub. Those I advise have many fewer advisors than me. I take that role seriously and have gotten many out of big trouble. I take Fred’s fiduciary thing very seriously, about doing the right thing. 

    4. Antone Johnson

      Great observation.  There’s a wide range of professionals out there devoted to helping us become the best we can be, from personal trainers to pitch coaches.Those who question why a great entrepreneur needs a Board at all need look no further than sports.  The world’s greatest professional athletes have coaches.  Great coaching, on top of innate ability and hard practice, is what enables them to get there and (hopefully) stay there.The CEO position is uniquely problematic in that he or she is the only person at a company without a boss.  No matter how open the culture, others on the team will pull their punches and soften every form of negative feedback when it comes to the CEO.  A good Board gives the CEO unvarnished feedback when things go wrong, suggestions for improvement, and a healthy dose of humility in a situation where swollen egos and entitlement are all too often the norm.

      1. Rohan

        The professional athletes example is one I completely agree with (and use).+1 +1 +1!

  15. Carl J. Mistlebauer

    For everyone living in NYC, this might be of interest: I use a firm in Brooklyn for my print graphics and they sent this to me…..

  16. Steve Ardire

    when reading this I was thinking about HP and Yahoo boards then said never mind 😉

  17. reece

    “Directors often must act against their own self interests. They must do the right thing for the company, its shareholders, and its stakeholders. There is no wiggle room on this rule. For directors, it is the golden rule.”reminds me of one of my favorite quotes from Atlas Shrugged:”…But he still thought it self-evident that one had to do what was right; he had never learned how people could want to do otherwise; he had learned only that they did. It still seemed simple and incomprehensible to him: simple that things should be right, and incomprehensible that they weren’t.”

    1. JLM

      I love references to anything Ayn Rand — it has become so pertinent to our times.I am conflicted as to the concept of “doing right” — is it the natural state of affairs, my thought; or, is it an unnatural state of affairs?I must say that I have never, ever been confused as to what is right.My father is 93 years old and I can say w/ complete certainty that his moral compass is so finely calibrated that I have never even seen it flicker.  I have been consciously observing that man for about 80 years and his track record is perfect.Kind of pisses me off at times.

      1. reece

        “kind of pisses me off at times.” hahahahi agree. gotta do what’s right and simply don’t understand those who don’t…but perhaps the problem is just that many people don’t know something’s ‘wrong’ (largely due to our media heavy world)

        1. JLM

          I heard a brilliant talk on this just yesterday.To paraphrase:Kids grow up too quickly because of outside forces — media, internet, movies, etc.This destroys the temporal space in which parents, mentors, coaches, rabbis, priests, imams could otherwise begin to develop character.Now when the young person finally meets these people who could nudge them down the path in the right direction, they are already merrily skipping down the path with ill conceived notions.This requires the forces of good to “unlearn” much before they are able to develop a smidgen of character. 

          1. reece

            VERY interesting theory and likely quite true

          2. Luke Chamberlin

            Sounds reasonable at first but then you read about war, coal mines, arranged marriage, Oliver Twist, etc and you realize that kids have been growing up too quickly since the beginning of civilization.I don’t believe that the internet or “media” have changed this much.

          3. JLM

            Every instance you describe is true and correct.  No doubt.Perhaps where I might see a difference is that you are describing a series of very real exceptions and instants in time that are not all encompassing while I think the impact of the Internet and media today is pervasive.In the times of Oliver Twist, not every child was Oliver Twist.Today every kid is assailed by the Internet, advertising and media.

          4. FAKE GRIMLOCK


          5. Luke Chamberlin

            That’s a good point. Although I would counter that poverty and serfdom and a short brutish existence were not exceptions for most of human history, only relatively recently.I think the internet has a net positive influence. I will take the internet generation over the television generation any day.(Sorry I don’t know how to reply to your other comment when the “reply” button doesn’t show up)

          6. JLM

            In a left handed way, you are proving my point.  While I cannot advocate for “…poverty and serfdom and a short brutish existence…” they were certainly not mechanisms which encouraged growth even misdirected growth.Having been an employer for 4 decades the current youth is easily the least industrious generation of workers.It is often easy to confuse the top 5% as being representative of the entire generation but that is simply not true.There is no doubt in my mind that Internet access is a cesspool of temptation for our youth in much the same way that it is the dosage of morphine that is the problem.  Morphine and the Internet are both great in the right dosage and are killers literally when over dosed.

          7. panterosa,

            You can reply if you’re in

          8. Luke Chamberlin

            I am bullish on this generation!

          9. JLM

            We really have no choice do we?Those of us who have been in the game for a few decades and have a real frame of reference may see a general trend, but if you employ the top 5%, the top 5% is the top 5% of every generation.

          10. fredwilson

            me too. 

      2. Carl Rahn Griffith

        It’s so frustrating how many don’t ‘do the right thing’ in business, let alone in life.It’s not hard. Too many people are obsessed with playing games.That really pisses me off.I’m on the verge of making a very big decision about my life in IT/business. Rubicon looms…Your father sounds an inspiration. So cool.

        1. FAKE GRIMLOCK


          1. Carl Rahn Griffith

            I’m trying, I’m trying…

      3. Matt A. Myers

        I want to double-Like this. Alas, I can’t.”The right thing” by what angle, with whom’s bias, within what scope?As you mentioned calibration, I see that evolving with age, though always with the base leading metrics they all started from – likely related to how sensitive one is, how reactive, to certain stimuli / situations – and an internal fairness that exists, based on ability to analyze in a sympathetic, perhaps empathetic way.How well your gut instinct ties into this, allowing you to quickly be fluid in response or not so fluid, I think really is what determines how easily people can navigate through life, how many experiences they can have (internally and/or externally), and how much depth they reach.

        1. JLM

          I think there is an almost yoga-like flexibility that enables people to use the same moral compass in every situation.Not situational ethics or a changing or adaptive response but an ethical foundation that with little thought responds to every situation.I must say also that when one is comfortable in their own ethical skin, life is sweet and simple and much turmoil is avoided.  You don’t waste a lot of time planning and plotting and you can sleep easy at night.

          1. ShanaC

            Maybe we should have you write about developing a moral compass

          2. FAKE GRIMLOCK


          3. ShanaC

            I try grimlock, I try

          4. Matt A. Myers

            Wise words, aka being comfortable with “letting go.” Quite a common theme in yoga, since you mentioned yoga-like flexibility. ;)Do you bend yourself regularly?

          5. JLM

            No, but I intend to as soon as my shoulder heals up.  I was always a good stretcher.

          6. FAKE GRIMLOCK


          7. Donna Brewington White

            So what’s with the new avatar?  “Big Robot” is watching?

          8. FAKE GRIMLOCK


          9. Donna Brewington White

            take me with you!

          10. panterosa,

            “I think there is an almost yoga-like flexibility that enables people to use the same moral compass in every situation.”So zen. I love it.

      4. Tom Labus

        Send that moral compass over to Goldman!No one though synthetic CDO’s packed with worthless mortgages weren’t wrong.  

      5. fredwilson

        i am blessed with a father who has the same. it may be a generational thing.

        1. JLM

          I also think it is the military influence.

        2. RichardF

          +1 My father was the same, I think it is a generational thing, possibly combined with military influence as JLM says.  More likely in my opinion that they have seen the world go through some really bad shit which made them realise there was more important stuff to worry about than self interest.My father grew up in the 20’s and 30’s and he always said that because poverty was less widespread now than it was during the Great Depression people have become far more self interested.

      6. panterosa,

        My father was similar. I have heard him called the fairest man many had met. I had less than 16 years to watch sadly.

    2. fredwilson

      do you know that part by heart?#impressed

      1. reece


  18. Pradeep Kumar Mishra

    Great post. Looking forward to rest of the series.

  19. Linnea Geiss

    It is really nice when the Board meetings aren’t a big mystery for the broader organization.  I think it’s helpful when all employees understand what info is being discussed at meetings and who the Board is.  I also like to stick around at least once a year to do an “ask the Board anything” kind of all hands meeting to give people the chance to get to know me.  I also get a good sense of a pulse of the organization by seeing what questions bubble up from that exercise.  

    1. JLM

      A good CEO casually works it into the conversation w/ key and top management as to what the Board meeting entailed.I often send the agenda along to senior folks so they know the extent of the conversation.This works best when it is done very, very casually so the recipients do not feel like they are being “briefed” but rather just a casual conversation.

    2. fredwilson

      such an awesome ideaAMA is powerful

  20. Jc_mellinger

    Would you consider doing a post (or adding a guest post) on the parliamentary aspects of running a board meeting? Many people have never been in a board meeting, prepped a deck for a board meeting or are aware of the nitty-gritty business of a board meeting. Might not be the sexiest post but could be interesting to some.

    1. JLM

      Up to Fred, but why not?

  21. Abhinandan Katta

    well said!

  22. sigmaalgebra

    > And we had to terminate all the employees who had an involvement in this matter.Maybe advise the CEO to so terminate?  Except if the CEO “had an involvement”, then terminate the CEO?That is, the CEO is supposed to be ‘operational’ but the Board is not. Since ‘termination’ of all but the CEO is operational and for the CEO or management team, the Board should advise the CEO to so terminate?First cut this is a tiny point of semantics, but this thread is making a big point that the Board is not operational.

    1. JamesHRH

      Board, assuming that the CEO who brought the matter to light agreed with this course of action, likely voted unanimously to take this action.A fair use of plural pronoun, given that:- if the CEO had refused to do so, the BoD would have fired him- they would have also then hired a CEO whose first act would be to clean up the mess- so , yes, when protecting the company from malfeasance, ‘we’ is appropriate.

      1. sigmaalgebra

        Sure, likely what happened was appropriate.Further, the Board has to be involved in all the major decisions, and saying how to respond to the accounting problem, misfeasance or malfeasance, was likely such a decision.  And on this decision no doubt the CEO voted with the rest of the Board.  Still, the response to the problem, terminating people, was ‘operational’.In general, if the Board votes that the company should do operational action X and, hint, hint, the CEO has to do X or be replaced by a CEO who will do X, then it’s a strain to say that the Board isn’t involved in ‘operations’.So, net, at times, in some exceptional cases, the Board can be involved in operations.Or, for a more cynical description, the Board stays out of operations as long as, for major decisions, the CEO runs the operations like the Board wants! 

    2. fredwilson

      yes. exactly.

  23. Emmanuel Makris

    Currently sitting in corporate law, I can’t help but feeling that the nature of Directors is changing in the era of disruption. In this era, you have 2 options to thrive.                                           1. You are able to bring on members of the board who are able to look past short term, beyond the profits of today.Director’s who are willing to disrupt their current business model to remain relevant.  This is necessary in solving the innovator’s dilemna, which is going to be crucial in the 21st century.  Or2. You allow the boards to be controlled by the founder.  In the case of Facebook, Zuck controls the board, and for all intents and purposes, I believe this  a key reason Facebook will be able to thrive in the post IPO era. When you are at the mercy of the public shareholders, the smallest bit of information can send your shares tumbling.  Market Capitalization built up over years of hard work, destroyed with one small tweak to the news feed. $30 billion disappearing  in one day based on public perception. This is the era all tech enterpreuners are facing. With rapid disruption occurring every day, making it the norm to not only survive but thrive, I can think of no one in a better position to make a better decision for shareholder value then the Founders (who were able to see the value in that particular disruption in the first place). There’s a reason every company coming out now a days, has a dual class structure, resulting in the founder keeping control. Its because in the future there going to need it. 

    1. JLM

      Well said, well played.  Brilliant comment.  Thanks.



    3. fredwilson

      a board controlled by one person is not a board. 

      1. Emmanuel Makris

        I agree a 1 person board is not truly a  “board”. However almost all tech start ups begin with a “1 man board” based on the nature of a startup. Guy has idea,creates company, by default he’s the board.  And I do not think at the beginning that is a bad thing. In some case’s I’m completely fine with a board  of a late stage, possibly post IPO company being controlled by a founder/ceo/largest stake holder if they are “able to maintain control” by staying lean, running at a profit, and if  not necessarily needing  investors money to expand they are able to take investment on their terms and keep power as a result.1 person controlling the board is kind of like giving them anoose. In the Facebook example on a $100 billion valuation where you raise 5 billion, in essence you’re giving the CEO a 5 foot noose. Long enough where you are able to deal with the bumps in the road. Enough time at the very least where you can fight a full war, before the market cap inevitably falls to $20 billion( yahoo), $1billilon (aol) as you lose the battle. Until the noose finally tightens around their throat, they have to raise more money at lessfavorable, terms dilution kicks in, and they lose control of the board andprobably their job . Succumbing to the innovators dilemma like all those who came before.  However if that noose never tightens  (which is unlikely), why should the founder have to necessarily give up control? I understand this is a rarity now and in most cases a bad idea. However in certain situations (Facebook beating Myspace), I feel the board being in control of 1 person is in all stakeholders best interest.A board can be gift or a curse. Retain power in your companyas long as possible, until you are able to find board members who are a good fit with your company today and your vision for its future.  The power to remove the management, is the power to destroythe company. Make sure  the boards worthy before you handcuff the nuclear briefcase to their wrist..LikeReply

  24. mikenolan99

    In the future, perhaps a post on Corporate Social Responsibility? At the extremes I see two points of view:On one end, “Don’t give back to the community – distribute the profits and we as shareholders will decide what is best for our charitable dollars.  We invest in you to do XYZ, not to act as a charity.”On the other extreme, “We owe our communities more than our Stockholders- our purpose is to serve the greater good.”How do boards and leadership decide what and how much to do to support society?

    1. fredwilson

      right vs lefti’m somewhere in between

  25. Hal

    In your example, you might also have mentioned no director sold their stock before the public announcement:)There also needs to be a focus on the dual fiduciary responsibilities of directors who also represent a fund when the fund’s % holdings do not alone or in combination with other fund representing directors, control the company. In the early stages of a company’s development  those responsibilities are aligned, later on they may or may not be, particularly if current valuations come back down to earth. It may be some recognition of this needs to be baked into  the board’s behavior, corporate governance guidelines, ie recusal when exit valuation discussions are held, adding more independent directors, etc. 

    1. fredwilson

      yup.  nobody sold. got wiped out on that one. lost more than i care to say or think about.

      1. John Revay

        Assuming if some directors sold before bad news became public> they would have been sued?

  26. PhilipSugar

    You know fiduciary responsibility is an interesting phrase.Fred gives a great example of the true meaning of the phrase.I on the other hand have heard the phrase used in the same way people use the word “unprofessional” without an example to backup.The board has a fiduciary responsibility to the stockholders, if the majority of the stock is held by founders, then that is who they are responsible to. That is the tough part when you have employees that also hold a majority of the stock.

    1. nums

      “The board has a fiduciary responsibility to the stockholders, if the majority of the stock is held by founders, then that is who they are responsible to.”Yes but no.  They have an equal responsibility to the minority shareholders.  Totally unacceptable to hurt the minority shareholders for the benefit of the majority. Delaware law might make this hard to enforce at times, but that’s the principle.Also, one has to be careful to separate the roles of the founders as employees/mgt from that of their role as investors.  This is the root cause of many fiduciary problems.

      1. PhilipSugar

         Very true see Honam’s response for what I really mean.  If you’ve sat on boards you’ve had that “guy” (and gals, I’ve had several on my boards over the years and I’ve never seen a gal do this so I meant guy)

        1. nums

          I haven’t sat on Boards, but rather have always been on the mgt. side of the table presenting to them.  You’re right.  It does seem like, IMHO, that’s it’s someone who’s totally over the line, black and white issue.  It’s not what one would think … that the bad behavior is an average, grey issue.  It’s the guy that essentially says … I want to be rewarded at everyone else’s expense.  Oddly, it doesn’t seem like any negativity sticks to these individuals.  They might not get the result, but they’re never checked.  They keep being well-regarded, well compensated, used again, etc.  I’ve never understood that.

          1. PhilipSugar

             I once postulated that 10% of board members are narcissistic.  JLM retorted it was more like 50%.Its why as a founder giving up control is a big issue.

          2. nums

            Agree and also why picking good investors/board members is a big deal.Everyone is valuation sensitive, and I get that.   However, good founders should aggressively background potential investors to see get a better idea of what they’ll be like as Board Members.  I’d rather take a mediocre valuation from a great potential Board Member (e.g., Fred), than a hefty valuation from a jerk.Word does get around about good folks, but you have to do your homework and ask around.  Places like thefunded are valuable but can be extremely biased and inaccurate (e.g., pissed off people that didn’t get funded).  Also, there can be much variability within a firm.  Great people at mediocre firms.  Bad people at great firms.  It’s almost partner by partner.Anyway, that’s my 2 cents.  Much respect to your comments. 

      2. ShanaC

        What is the best way to separate out founders as management from founders as investors?

        1. nums

          I’m no expert on that, but I’d suggest that it’s more of a mental process.Putting on the “management hat” and planning, executing, delivering results to the best of one’s ability.Putting on the “investor hat” and objectively assessing, advising and rewarding/punishing management’s role.Conflating the two is the problem.  For example, what if Zuck raised $5B on an IPO and promptly bonused himself $5B for his role as CEO. He controls the votes, right?  Just because he can (i.e., hello investor lawsuit) doesn’t mean he should.As I mentioned in a different reply, in my limited experience, it’s not usually a difficult distinction.  It’s usually a black/white effort to screw someone over and pretty obvious to discern.  

        2. PhilipSugar

           That’s the whole issue.  Its a really tough one.  From just the entrepreneur point of view, I’ve seen many investors look at it this way:When it comes to salary it will be said well they are founders they can take below average salary.When it comes to representation, they’ll say they are management and should have less of a say than investors.

      3. fredwilson


    2. fredwilson

      you are responsible to all of the shareholders, not just the majority shareholder

      1. PhilipSugar

        Poorly written.I’ll give an example of what I’ve seen.Lets say the market doesn’t turn out to be as big or grow as fast as expected.If you take all shareholders into account you say oh well how do we maximize value.If you take the shareholders into account that need a 10X return in less than 10 years you get another decision altogether.I guess what I am saying is that when you use the fiduciary word its like the unprofessional word you have to back it up with something else.Its unprofessional to not deliver on commitments.  It is your fiduciary responsible to report fraud, have and audit committee etc.My problem that I’ve seen over and over is that people use these words with no way to back it up because they are not getting their way.  Honam states much better than me as I point out.Tell me you haven’t seen this often?

        1. fredwilson

          that’s where the board has to exercise good judgementi’m on a board where the founders are stuck in the company because they can’t sell it for enough to make their long and tireless effort worthwhilein that situation, the board constructed a deal that hurt the non founder shareholders economically but was in the best interests of everyonethat’s judgement. that’s doing the right thing. that’s what good boards do.

          1. PhilipSugar

             I would like to serve on a board with you sometime.  Maybe our paths will cross.

          2. fredwilson

            I feel the same way about you Phil

  27. Aaron Klein

    I think it’s incredibly instructive as a CEO to serve on a board where you are not the CEO.Doing that simultaneously to your job as CEO is very time consuming and may not be possible, but if you’re going to be a startup founder, find a board to serve on for two or three years and get the experience of being in that role.It has dramatically changed how I work with my board as a CEO.

    1. fredwilson

      yes!i encourage it as much as i can.

  28. Shawn Cohen

    As a non-exec, it’s been interesting to observe the push and pull between our executive team and our board.This push/pull mainly seems to center around the executives providing info w/ enough lead time and the board responding to it w/ their informed, honest opinion.I would like to see a post or reference to the balance between executives not treating the board as a rubber stamp but the board being responsive to read communication on key topics from the executive team.Is this a problem anyone else has encountered? What’s your solution been?

  29. honam

    I totally agree with this statement “For a Board to do its job, it must represent all stakeholders’ interests, not just one stakeholder’s interest.” Some people on the comment stream seem to confuse “stakeholder” with “shareholder” – there is a huge difference.I would add two more specific requirements of the board:1) The most important job of the board is to hire and fire the CEO. That includes evaluating CEO performance, setting CEO comp plan and giving some thought to succession planning (a LOT of thought in some companies, like Berkshire Hathaway these days or at Apple last year).2) The next important job is to “Do No Harm.” I hate it when a board member starts pontificating about “fiduciary duty” and then tries to enthusiastically carry out such duties, subjectively defined. Proceed with caution. Board members should certainly ask questions and try to be a good and wise sounding board. The statement of “making sure that the CEO and management team are pushed out of their comfort zone” makes me cringe a bit. “From time to time” was a good qualifier of that statement but in my experience a great CEO and team will push themselves far more than any board member can or should. If the board has to push too often, it may be getting too involved. Then maybe it’s time for a new CEO?

    1. PhilipSugar

      Much better way of trying to say what I did.

    2. fredwilson

      depends on the management team

      1. honam

        Very true. Also depends on the board member. There are always exceptions but as a general rule, I’m biased against the board pushing. Encouraging and nudging is how I like to think about it.

        1. Antone Johnson

          Well said.  A Board that is not encouraging and nudging is not doing its job.

  30. jason wright

    Is a board meeting to ratify decisions already outlined and agreed off board?

    1. fredwilson

      not necessarilyit can be used for that purposebut often times the decisions are outlined and discussed in the meeting

  31. jason wright

    “Board members should not treat their seat as a right (even if it is)”When legally is a seat a right?

    1. fredwilson

      when you negotiate for it as part of your stock purchase. we do that. i am on most of the boards i am on as a right. i’ve learned to forget that. it’s irrelevant.

  32. pointsnfigures

    was on a board of a private company that went public.  it was, and to this day is a quid pro quo board.  worst board on the planet. 

  33. Akshay Kumar

    Great series! You bring up a great point towards the end but I have to disagree with that generalization. In fact, for a tech startup I think the sensible default is for the board to be controlled by the founder unless there is a damn good reason for an alternative. The company has a certain responsibility towards shareholders and employees but it dwarfs in comparison to the responsibility towards the customer. The prime objective is to make users happy. Once you do that everything else will fall in place. It all just works out. Shareholders be damned, they are along for the ride and they invested knowing fully well the sort of company they were investing in. The largest shareholder unless he’s a founder is going to get gun shy a lot of the times. I am assuming the case that the founder is still at the company and is the CEO. The driving factor for the founder is very different than say an external stakeholder like a VC. A lot of the times this is someone who bled for a while to get things started when no one else saw the possibilites, it’s his/her baby and they understand the underpinnings and what the prime motivation was.Now of course there is great value to good counsel and a smart CEO will recognize that and benefit from it. So, yes, the founders opinion has to be given great weight unless he went crazy in between because that is what you invested in – the founders vision. It makes great sense to have a diverse group on the board but expecting an Al Gore on Apple’s board to have the same insight about the tech business as Steve Jobs is just crazy talk.

    1. fredwilson

      i think you might disagree after working with hundreds of foundersnot every founder is steve jobs

      1. Akshay Kumar

        From your point of view I can see how that is a big problem. That is why you always have the option to change the person leading the board. What I am saying is you have to give them a fair crack at it first. They earned it. If the investor doesn’t think so then they shouldn’t put money in the first place. After all the idea is worth next to nothing and the investment should be in people. From the point of view of a person who is starting a company, for me personally, I want to be part of this for the next 20-30 years or more. If bringing in an investor is going to jeopardize the long term for a short term benefit I’d be reluctant to do it. But then I might be the minority, I don’t want to be hero just working on stuff that I enjoy building and being able to make a living off of it is good enough. If I hit the jackpot, it’s just gravvy.But, yes, it’s sort of scary to see how much money people have been able to raise with an average idea and a below par team. It’s absolutely shocking. In that case, yes, the CEO is not the one who should be running the board.Will find out shortly and when I crash and burn you can tell me I told you so ;- ).

        1. fredwilson

          i think most founders can grow into great CEOs. that’s what he hope for, what we work for, and what our bias is.but i don’t think they should be controlling the board

  34. invisible man

    Where is the entrepreneur in all of this?

    1. fredwilson

      on the board

  35. nums

    One other thing, many entrepreneurs believe that no Board or  a controllable Board is an ideal situation.  We all see the hassle of prepping for Board Meetings, worry about the ramifications of a bad quarter, etc. and wonder what it would be like to not have a BoD at all.  Imagine the freedom of doing what’s right for the customer with NO outside influence.  Sounds great, right!  … Not so much.I’ve worked for some of these guys and heard vicariously about others.  It sounds trite, but often NON-CEO MANAGEMENT BENEFITS TREMENDOUSLY FROM HAVING A BOARD. * Most people in this world need accountability.  Even VCs have LPs to answer too.  Most people are driven by this.  Sure, other parties can provide similar motivation too, employees, customers, etc.  But, typically, the best people are out to please someone.  Without this, some folks would simply build the business up to a lifestyle level, clock 20 hours and rake in the cash.  This sucks if you aren’t the owner and are looking for growth.* Good advisors.  Good Board Members put in a lot of work.  So, when there isn’t any money on the line, less are interested.  Next thing you know, the Advisors or Board are stacked with amateurs and/or friends of the CEO.  I’ve seen less than stellar advice given (funding, hiring, legal organization, insurance, etc.)* Exits.  I’m glad that some folks want to build a monument to their ego for the next 30 years.  Good on you!  Especially, if they can cash out $10M on the way their and be set for life (i.e., secondaries that may only be available to senior execs).  I would be very happy in that situation .. who wouldn’t?  What about the rank and file?  Think they are happy sitting indefinitely in a company with high growth, high profit, mediocre pay and no liquidity prospects?  Of course, I’m not saying 2 years and flip.  Rather, a reasonable time frame … 10 years? * Focusing events.  As much as they can be a hassle, BoD meetings can be great focusing events.  Everyone has to think through their roles and how that relates to the company big picture … and, how are we doing versus the last time we spoke.  Typically, the CEO and management is doing very fluid product, sales, marketing and cost adjustments.  As such, they naturally focus on the trees.  Talking to a BoD every 6 weeks about the forest helps ALOT.If I could map an ideal world future for a company (either as an exec or founding ceo), I’d take $1 of VC money with a great Board Member.  I’d get all the benefits of the Board, drive for liquidity,etc., while minimizing my dilution.  Not having a BoD … having lived through it, I wouldn’t choose to do so again.

  36. Reykjavik

    Perhaps on next week’s post you’ll talk about how to determine optimal board size and mix. I’m an executive at a well-funded start-up that is awash with investor-directors (mainly CEOs from our strategic investors, who also represent our major suppliers — long story). Someone thought that having these folks inside the tent would speed the way for getting industry adoption of our products, but it’s led to the classic micromanaging problem since the board is full of operators. I think it’s up to the CEO and the non-exec chairman (separate roles here) to come to an understanding about how to do governance. Very frustrating!

    1. fredwilson

      oh god. i’ve been there. it’s awful.

  37. Donna Brewington White

    Are you familiar with @lucymarcus — she writes a Reuters column on boards and contributes fairly frequently to HBR.  Lives across the pond.  In case you need a resource.  @Tereza:disqus knows her too.

    1. fredwilson

      nope. don’t know her.

  38. Emmanuel Makris

    I agree a 1 person board is not truly a  “board”. However almost all tech start upsbegin with a “1 man board” based on the nature of a startup. Guy has idea,creates company, by default he’s the board.  And I do not think at the beginning that is abad thing. In some case’s I’m completely fine with a board  of a late stage, possibly post IPO company beingcontrolled by a founder/ceo/largest stake holder if they are “able to maintaincontrol” by staying lean, running at a profit, and if  not necessarily needing  investors money to expand they are able to takeinvestment on their terms and keep power as a result.1 person controlling the board is kind of like giving them anoose. In the Facebook example on a $100 billion valuation where you raise 5billion, in essence you’re giving the CEO a 5 foot noose. Long enough whereyou are able to deal with the bumps in the road. Enough time at the very leastwhere you can fight a full war, before the market cap inevitably falls to $20billion( yahoo), $1billilon (aol) as you lose the battle. Until the noosefinally tightens around their throat, they have to raise more money at lessfavorable, terms dilution kicks in, and they lose control of the board andprobably their job . Succumbing to the innovators dilemma like all those whocame before.  However if that noose never tightens  (which is unlikely), why should the founderhave to necessarily give up control? I understand this is a rarity now and inmost cases a bad idea. However in certain situations (Facebook beatingMyspace), I feel the board being in control of 1 person is in all stakeholdersbest interest.A board can be gift or a curse. Retain power in your companyas long as possible, until you are able to find board members who are a goodfit with your company today and your vision for its future.  The power to remove the management, is the power to destroythe company. Make sure  the boards worthybefore you handcuff the nuclear briefcase to their wrist. 

  39. sigmaalgebra

    As a startup founder afraid of having a Board, maybe I can still see a good reason for a CEO, and also good just for the CEO, to have a Board! Maybe!Sometimes a startup CEO finds himself with vast plans with half-vast planning and resources, trying to fit 15 pounds into a five pound sack, and has a team that has already given more than reasonable to the company and gotten less than promised from the company. Then maybe the CEO has ‘lost face’ with his team and is not really in a position to ask for more.Or with an aviation analogy, the CEO has a good airplane on a good trip but did some overly optimistic flight planning, ran into some bad weather, and is short on reserve fuel. Enter a VC? Not that a VC would ever think of such a thing! In particular, that would mean that VC is a business based in part on human frailties, “The heart-ache and the thousand natural shocks that flesh is heir to”. SUCH a concept! “We build big companies out of human frailties.”! Human frailties, the rich potting soil for growing big money! And there can be money to be made that way? You mean, if people ate right, then there’d be much less need for hospitals, and, if company founders could plan well and execute with discipline, then there’d be less need for VCs? Amazing! But the founder, out front sees a Board he is terrified of but out back sees a monster with teeth 18 inches long gaining rapidly! Yup, there can be a sheriff arriving with a big chain and padlock ready to lock down assets for unpaid bills! Yup, risky decisions!Then one day the Board asked for some planning that needed some analysis. Board or not, the planning and analysis should have been done.I heard about the request, saw that no one had any very good ideas on how to do the analysis, got involved, made some reasonable assumptions, derived some math, and got a cute equation. I showed this work to the Senior Vice President (SVC) Planning tasked with responding to the request, and he took my work as the company’s best response to the Board’s request.So on a Friday, for the results for the Board, the SVC and I plugged some numbers into my equation and drew a graph. The next day, Saturday, the SVC was traveling, and at noon I was in my office doing whatever and got a phone call from the COO asking if I knew anything about the graph and if I could come to the HQ offices. Apparently the COO had guessed that I had done the graph.As I later learned, the Board meeting had started early that Saturday, and two guys on the Board representing a crucial investor, with deep pockets, two relatively technical guys, had seen the graph and asked how it was calculated. The rest of the morning was spent with the management team trying without success to reproduce the graph. The two guys lost patience with the team and the company, got plane reservations home, went to their rented rooms to pack their bags, and as a last chance effort returned to the HQ offices to see if the team had figured out the graph.When I arrived, the two guys were standing in the hall next to their bags and at the door to a room. The company was hanging by a narrow thread about to break.In the room, the COO asked me to explain the graph and plug in some numbers to reproduce several points, and I did. The two guys were now happy, and the company was saved. No, the movies can be wrong: This success did not result in my being kissed by a young woman, about 110 pounds, 5′ 5″, gorgeous face, perfect figure, long, blond hair!It had been a close call; the company had nearly died. The risks taken for no good reason were absurd: I might not have been in my office at noon that Saturday, might have been out shopping, eating lunch, running, or whatever.So, what the heck had happened?Well, I hadn’t known that the Board meeting was that Saturday morning, should have been told, should have been asked to have been available, but had not.Why? There had been some case of competition within the company. Since I was the only one who really understood the graph, others who knew about the Board meeting wanted to keep me out. Yup, some people in an organization believe that some of the most valuable information is what they keep secret! Ah, as Chief Inspector Jacques Clouseau might have said, “the old silos of information ploy”!The CEO? He should have been more involved. Of course he definitely should have been able to get support for anything presented to the Board and in particular for the company’s response, my analysis and graph, to the planning the Board had requested. At least, that Saturday he should not have permitted the rest of his team to have kept me away from the Board meeting, should have known that I did the graph, should not have had the COO have to guess I’d done the graph, and should have gotten me to the meeting long before the two guys had given up on the company and were on the way home.Really, as we know from very standard advice, the CEO is supposed to be well prepared for the Board meeting, to have pulled together a ‘package’ of information for the Board some days in advance of the meeting, and to know about all the information to be presented (exception: JLM says that he wants his CFO to present the accounting information). Since I’d done that graph less than 24 hours before the meeting, the CEO was already late. Uh, there can be some value in the discipline that has good students get their term papers in on time, with the spelling correct, etc.!And possibly the CEO just didn’t want to admit to me or anyone that my work had been important for the company. It’s not good for the CEO not to be able to get, want, or accept good work from his people!For a company, having people in the company fighting people down the hall is a standard problem. Part of the job of the CEO is to stop such fighting. In this case, the CEO was so lax he let such fighting nearly kill the company.So, the CEO, from having lost face in front of his team from having to stuff 15 pounds in a five pound bag, wasn’t really in a position to ask more from his team: He was not able to ask for, even to appear to want, the analysis and was not able to hold down on people fighting people down the hall.So, enter the Board: The CEO had a great excuse to get his team to do the right things; the Board was insisting, STRONGLY, as in otherwise the company was toast.So, pleasing the Board can provide some additional means for a CEO, even one who has already asked too much and returned too little to his team and lost face, to get his team to do the right things. Or implicitly the CEO could take the position, “Yes, it’s tough; we’ve all worked too hard; you shouldn’t he asked to do more; but the Board is insisting; so we have no room for wasted effort; we have to pull together to get this done; we CAN’T lose the Board. We can’t be on the Titanic going down and happy because just now our end of the ship is higher than the other end.”.Yes, the company is now a blue chip. No, I don’t have a script for a movie! Yes, the stock I’d been promised but never got would be worth north of $50 million; a good Park Avenue lawyer told me I have no legal recourse; with the stock I’d have a place in NH and be going to seminars in mathematical physics at Harvard and MIT and feasting on Maine seafood and Montrachet! So, I should try to get my $50+ million from my own efforts and not gripe that some CEO who couldn’t plan or manage very well ripped me off!Lesson (1): That Saturday Board meeting experience had me think that the CEO would rather see the company killed than welcome my contributions to save it!Lesson (2): When look at a CEO, has he already ‘lost face’ with his team?Lesson (3): Yes, some good news is, even with some quite bad planning, if actually DO get the basic work done, which the company did, then still can have some good success. Really DO have to deliver some useful results customers like a lot, but those results don’t always have to be perfect. Don’t let the perfect stand in the way of the good enough; at times can build one heck of a fortune from results that still are quite short of perfect.E.g., of course my Web site needs some security. So, should I work through the several dozen Web pages at Microsoft’s MSDN Web site for what Microsoft has already done with security for its ASP.NET Web site infrastructure or for the rather simple security functionality I need now just write a little code of my own in each of my Web pages? Ah, decisions, decisions! Looks like I’ll spend a little more time on what ASP.NET has and then for now just write my own, simple code.That’s a theme for Microsoft: For nearly any problem at all common in practice, they have 20-150 Web pages of documentation for a general solution where for my less than fully general problem they also have five pages of documentation which with 100 lines of my own code can give a solution that is easier! E.g., they have some really high end, complicated, general communications functionality, but I just returned to the workhorse of the Internet, TCP/IP sockets, with some class instance serialization to/from byte arrays which, net, is MUCH easier. Perfect? No. Good enough for a good start on a serious business? Likely.Lesson (4): Did the CEO-founder believe that he’d already done everything really important for the company and not need anything more that was important? Maybe. Then in general such an attitude would be something to watch out for: Even with good planning, a CEO might need some actual good work he can’t do, due to lack of ability, skills, or just time, and, thus, needs to be willing, wanting, and waiting (borrowing from ‘My Fair Lady’) to get such contributions. Maybe! “Pride goeth before the fall”? That CEO nearly fell; maybe pride was one of the reasons.Lesson (5): It’s good to have a 15 pound sack for any five pound loads instead of just a five pound sack for a crucial 15 pound load. And anyone attacking people down the hall needs some ‘counseling’ or a new career, and the CEO needs to be sure such counseling or new career happens. Better, the CEO needs to have established, essentially preemptively, an atmosphere of ‘teamwork’ that would forestall any attempt of one team member attacking another, of one player keeping the ball and making a low percentage shot in search of his own glory but at an expected loss for the team. Coaches and generals know these lessons; CEOs need to also. Such problems are a special case of what the organizational behavior people call ‘goal subordination’. Besides, on a losing team, a player may conclude that their own glory is the only upside they have; not good to have a losing team!Main lesson (6): A Board can provide an additional layer of ‘authority’, discipline, and resolve for a CEO, including one who has already ‘lost face’ with his team. In particular, if a VC is to provide some reserve fuel, then he may also want to insist on some stronger discipline and better flight planning! The difference need not be the Board insisting that the CEO and team walk on water in warm weather but just get up and walk routinely instead of sitting on their back sides and arguing among themselves.I’m still afraid of having a Board!

  40. Mark Essel

    Looking forward to the Chairman of the Board post, as well as how a board can be structured such that it’s not dominantly controlled by major shareholders, CEOs or founders. When you speak of evolving boards (churn), does that churn correlate to funding or other company milestones?

  41. Adam Feldman

    Do any examples of particularly well-run boards of directors come to mind?

  42. Steve Burrows

    Great post Fred, right on the money.Boards need to understand that their responsibilities are direction, strategy, scrutiny, risk control etc. – not managementThe board (of directors) directs – “We want to go that a way”. Getting there is delegated to management (via the CEO). As soon as the two get confused the company itself is confused, as are its stockholders, customers and employees. The board is a collegiate body, no one member should dominate and the Chair’s job is to enable the board, not rule it. Stockholders have no place on a board – unless the can forget they’re stockholders when they walk into the boardroom.If more boards understood these simple principles there would be more better companies. The state of western economy shows clearly that too many boards have been doing the wrong things for the wrong reasons for much too long.

  43. Sebastien Lahaie

    Short and to the point! A lot of Boards forget that their obligations and responsibilities are first and foremost towards the company they serve and have forgotten altogether the concept of fiduciary (assuming they knew what it was in the first place…).

  44. Business Bob

    I would disagree that the Board works for the Company (I inferred that the author meant the CEO, which may not have been the intent, but that was my read), the Board works for the Shareholders period.Proper corporate governance would have the following apply.  The Shareholders own the Company, the Shareholders elect the Board to supervise the Company.  The Board appoints the CEO to run the Company under their supervision for the benefit of the Shareholders.  The CEO runs the Company under the direction of the Board and if the CEO fails to do that then the Board has a responsibility to step in.No where in here does this say where a Board’s duties stop as a universal rule, but rather the Shareholders needs and desires should govern the depth of that relationship.  I believe the author’s perspective here is colored by his position as a Venture Capitalist where being more involved is not practical and as the Shareholder’s proxy you can choose to delegate more authority and freedom to the CEO to manage the business…but that is a Shareholder right you are making a choice on and exercising on behalf of your LPs, which is fine, but not a universal Board mandate that would apply to all situations.We run a dozen businesses (more mature companies with hired management teams in most cases) and are more involved as that is the Shareholder mandate, which doesn’t make it right or wrong, just different.  My only point is that the Board should manage according to the goals and objectives of the Shareholders, whatever level of involvement that would dictate.Shareholder needs should come first.  The CEO is still an employee.

    1. Steve Burrows

      I absolutely disagree. You are advocating the exact recipe that has brought so much of Western business to its knees. The primary duty of the directors (the board) is to the company. This is now enshrined in UK law (which is the origin of most western company law and structure) precisely because of the destructive consequences of prioritising shareholder interests above the sustainability of the enterprise.The shareholders are the owners of a bundle of financial rights in a company – they cannot “own” the company, a company is a natural person in law just like you or me. Shareholders can opt in or out – they buy or sell their shares, and if they don’t like the way a company is going then they should opt out. The board has to manage the company for the long-term benefit of the company, if it does otherwise it is a) negligent in the execution of its duties, and b) (in some jurisdictions including the UK) committing a criminal offence.Your concept that the board works for the shareholders is an absolute fallacy. The board is appointed by the shareholders to work for the company. Any board member who thinks that their primary responsibility is to the shareholders has no right to be on the board.

      1. fredwilson


    2. fredwilson

      i think we in business governance circles put too much emphasis on shareholders needs and not enough on customers, suppliers, employees, debtholders, and other stakeholders. i prefer a stakeholder focus than a shareholder focus. and i am a big shareholder.

  45. Donaldmikado


  46. David Morken

    Back in 2010 Paul Graham thanked you for reading/reviewing his essay which argued much more in favor or founder/ceo board control…  Just wondering how you reconcile the tension between the two pieces – perhaps you reviewed and dissented…

    1. fredwilson

      i review and dissent a lot with Paul. but always in private. i have huge respect for him and his views. but i often disagree with them.

  47. Modify Watches

    I know I’m late to the comment game on this post, but it just popped up in my company. A new hire (VP Marketing) asked about the Board of Directors and the plan to add to it or move it around. For context, we’re pre-funding and I’m about a 90% owner. We’re doing a seed round now, then *possibly* looking for an A round in the future, or else just converting all of the seed investors to equity. What should my Board “Plan”/strategy be? Right now I think more along the lines of a personal advisory board to help with decision-making. Do I need to add a formal Board today? if we’re not a tech-startup and not taking on incredible amounts of cash, do I ever really need to add a formal board? Or does the informal advisory board serve its purpose?I understand my new hire’s concern -he’s protecting his equity. But I also like keeping everything simple as much as possible.Thanks for any feedback

  48. fredwilson

    thus my emphasis on the great boards in my postthere aren’t enough of themand i serve on both kinds