The Board Of Directors: Board Committees
A Board has real work to do. In addition to the most important work which is providing strategic advice, accountability, and feedback to the CEO and the management team, the Board is required to provide oversight on the Company's financial statements, the Company's compensation plans, and the ongoing maintenance of the Board.
As such when a Board gets big enough to justify them, it makes sense to create committees of the Board to deal with these specific responsibilities. A good question to start with is "when is a Board big enough to need committees?". A three person Board should not have committees. The Board will be the default committee for all of this stuff. A five person Board could have committees and should have them if there is a lot of work required for audit and compensation. A seven person Board and larger should most certainly have committees.
The audit committee provides oversight of the CFO function, the auditors, and related matters (which might include tax compliance, SEC compliance, etc, etc). The audit committee should be closely involved in the audit, should be briefed both before and after the audit by the auditors, and should do executive sessions with the auditors and without management. If issues come up during the audit that require Board attention, the audit committee and the audit committee chair are the right place to discuss them with the auditors.
In the early days of a company it may not even be necessary to have an annual audit. And therefore the audit committee's duties will be light. But over time as the Company grows, the audits become more complicated and the duties of the audit committee become more involved. When a Company is preparing for an IPO, it makes sense to spend time making sure it has a very experienced and involved audit committee and a "financial expert" as Chair of the audit committee. Most of the time, this financial expert will be a very experienced public company CFO or the partner of an audit firm, possibly retired in both cases so the proper amount of time can be committed to the role of Audit Committee Chair.
I have worked with great public company audit committee chairmen and they are worth their weight in gold. A public company Board member will want to be sure the numbers are correct, the CFO is up to the task of managing the Company's financials, and that the auditors are being properly utilized and managed. The audit committee chair provides this level of comfort to his or her fellow board members. This is a big job and it is important to have someone in the role who is prepared for it and committed to do it well.
The compensation committee provides oversight of the Company's compensation plans, including equity compensation, and also is directly involved in setting the compensation of the CEO and often the senior management team. The compensation committee has two related goals. First, they must insure that the Company's compensation plans are appropriate to allow it to attract and retain the best talent in the market. And second, they must insure that the compensation plans are not too generous resulting in a loss of value from the shareholders to the management and employees.
This is a delicate balance to strike. I like to make sure that the compensation committee has active peer CEOs on it who can speak to the current market value of talent and who will have a gut feel for what is reasonable and what is not. I also like to see compensation committees avail themselves of market data on compensation that can be supplied by a host of compensation consultants in the market. If a company errs on the side of being slightly generous in terms of compensation that is often a good thing. But things can get out of whack, particularly at the senior levels, as we've seen with compensation plans for large public companies that are not performing well but top managers are getting paid tens of millions in annual salaries. It is the compensation committee's job to make sure this doesn't happen.
One of the compensation committee's most important jobs is to help a company create, manage, and evolve its equity compensation plans. That can include restricted stock for founders and early employees at the start of a company, it can include an option plan, and it can include a restricted stock plan for public companies or restricted stock units for late stage private and public companies. This is complicated stuff. I did a whole MBA Mondays series on Equity Compensation and a good compensation committee can bring tremendous value to a Company by keeping it up to speed on best practices and the latest and greatest equity compensation approaches.
The third and final most common Board committee is the Governance Committee. This committee is reponsible for recruiting and nominating new directors, identifying directors who should leave the board and asking them to leave, setting the board meeting schedule, and a host of other "self governing" issues for a Board. All of this needs to be done in close coordination with the Board Chair and the CEO and so most governance committees are chaired by the Board Chair and have the CEO on them.
I generally like three person Board committees, with one chair and two other members. This is most efficient for everyone. Committees can get bigger for large boards but I don't see many Boards in the startup entrepreneurial world that are bigger than nine. And nine is large in my book. If you have a seven person board, you will have two people who serve on multiple committees. Ideally these people will not be the committee chair since the chair does the most work. If you have a five person board, I suggest going without the governance committee and making that the job of the entire board. Then you will have four non-CEO board members. One can be audit chair. One can be comp chair. And the other two serve on both committees. That's a fair division of labor. If you have a nine person board, then you have plenty of people to serve on all the committees.
Board committees should meet regularly. These meetings are often done before the main board meeting. But they can also be held in between board meetings. Board committees do not need to meet in person as much as the full board does and much committee work is done via conference calls.
Strong, well led board committees that are engaged and active make for better Boards. A lot of the logisitcal work that Boards must do can be done in committee and simply reported to and ratified by the larger Board. This leaves time in Board meetings for the meaty strategic conversations where Boards can add the most value. So make sure you have set up committees when your company and your Board gets big enough to justify them. You will be doing yourself a favor and you will be doing your Board a favor too.
Comments (Archived):
Very nice breakdown of the positions and roles. Thank you.
Fred – is there general pattern for the board structure in relation to where the company is in its development cycle in USV companies (and other companies that you admire)? If you mapped out start up staging as: 1.Seed – initial idea,technology demonstration, first customer sales2.Start up Early stage – finding market fit – early adopter reference customers3.Start up Growth – reached product/market fit raised initial finance4.Start Up Scale – scalable sales model,exec team in place, executing5.Start up -Pre-Exit/IPO – profitable several quarters…If there is a pattern to the board structure/skillset? if so what does it look like? (and has it changed over the years?)Really enjoying the MBA Mondays series – thank you.
smaller is besti like three for 1 & 2three or five for 3five for 4and five or seven for 5
We’re in the seed stage and we’re planning on having 7. Right now all 3 co-founders are on the board as well as my sister (a shark / corporate lawyer). We want to bring in 3 experienced advisers to the board over the next 6 months which would bring us to a total of 7.Is your advice that I kick my co-founders off and only bring in one outsider? I had thought that we would all be “running the company” in the first year but in addition we clearly need outside expertise. I personally like having more people involved, I think it helps with the momentum.
Tough call. I think its a large group that you may find unweildy. But kicking cofounders off boards is never easy
Yaniv, may I please have the concession to sell tickets and drinks?Please, please, please?Because you, my friend, are going to have a 3-ring circus w/ co-founders and blood relatives and watery predators and a lawyer.I would suggest you start out slow w/ just the co-founders, no lawyers, and one gray haired eminence who you can talk to.
I keep telling people you need salt AND pepper. Don’t forget the pepper! We are on the lookout for this mythical creature with a perfect blend of black and white.Haha in all seriousness I know I’m breaking all the rules. I’m a bit of a Rufio if you get the reference. We’ll have to grow up soon I know. We’ll be executing and hitting all our metrics before we know it 😀
If you described this structure to me and then asked me to join the team, I would pass. The likelihood that your BoD will paralyze the company is very high.If all three founders are solid in their relationships, one should be able to represent them all. Your sister should go, because she is your sister – none of the other Board members can call your Mom to complain about you!One independent, one guy to represent the investors and the CEO, that’s what Fred said and that’s what 90% of investors will tell you.I get you like to break the rules, but when you break some rules you create an Amateur Hour perception not a iconoclast one.BoD is one of those places where this kind of rule breaking has no upside.
“…none of the other Board members can call your Mom to complain about you!”Haha, so true.”Mom, he’s not listening to me and I’m his older sister!”
@jameshrh:disqus As I said we’re really early stage. Everybody understands that their position on the board is temporary. We have a great team dynamic – we speak freely and all decisions are made in the best interest of the company.I’m a product guy and this is my first go at starting a company. I can draw a hell of a design on a whiteboard but I’ve never assembled a board before so please cut me some slack and thanks for the feedback.As I said earlier, we need to at least describe the board now since we’re ratifying our operating agreement this week in order to get funding. I guess I just feel more comfortable appointing people I know and respect over rushing to appoint seasoned pro’s that I don’t know as well. I would feel less bad voting my friends off before their terms expire than doing the same to somebody that we ask to join now but turns out to be a bad fit. That is of course unless having this temporary board would raise a red flag which guessing from everybody’s reaction appears to be the case.
I feel like we’re in a board meeting right now. Is this what getting reamed feels like?
No, because you didn’t get fired.Every person on AVC.com wants you to succeed. I do.But everyone also wants you to avoid all those traps they have fallen into.Learn by experience — the other guy’s experience because it is cheaper in the long run.Good judgment, the product of experience.Experience, the product of bad judgment.You can do it.
Priceless…”Good judgment, the product of experience.Experience, the product of bad judgment.”You can’t fake experience. Someone with more experience will see through it right away.
Yaniv – take the feedback in the spirit it is intended: some of us have been around this situation a lot and been burned a lot (speaking about myself); some of us have been in the exact spot you are in an excelled on many levels (speaking about @JLM:disqus , although he can speak for himself, as you may have noticed ;-)We are looking to help and pass along the wisdom that is built into our scar tissue.What is interesting is that we are all giving you the same red flag alert. That should tell you something.If you are very early stage, you likely should not incorporate and not have a BoD. Chris Dixon would go that route, I believe (another cat with some high quality experience, IMO).
Thanks guys, I really do appreciate it. I should have put a little 😉 so you would know I was joking. It’s good to be in the hot seat, it’s the best way to learn!I respect the experience you guys have and will be taking all of this to my people to discuss. Cheers!
man, you are on a roll in this thread. great comment.
Fred, useful post as always.Another important role for the audit committee (or the board at large) is to scrutinize the company’s revenue recognition policies. It is never too early to get that sorted out.Also, when the company is ready to add outside board members (arm’s length from investors), what committee(s) should be involved in establishing board compensation policy?
How about ad-hoc committees for short term tasks?And I would propose a Marketing Committee as a 4th or 3rd standing committee.
The more you’ve written about board the last few weeks, the more I’ve realized how much work being on a board is for the directors and how serious a responsibility it is.One thing you haven’t really touched on is what kind of factors a potential member weighs when being asked to join a board. I imagine that you get asked to join more boards than you have the time or inclination to be a member of—what kind of things do you consider when choosing where to serve?Perhaps this is more germane a question in regard to non-investor outside members, since I guess you may just serve on all the boards and only the boards of the portfolio companies for which you are the lead partner?
i would treat it largely like an investment decision. would you invest your money? would you invest your time? would you invest your reputation?
Hate to change the subject but I’m surprised you’re not posting something about Instagram. The least Instagram could have done was offer to buy us dinner first. My goodness!
i am uninspired by their choice to sell and whom to sell to. it’s their company and their call. congrats to them. but it doens’t excite, energize, or cause me to think in any way.
Just an observation but 9 comments seem pretty weak…something wrong with disqus?
Holiday weekend.Not the MOST accessible of topics – even though it is critical.
until you and JLM started dropping some wisdom. then it got interesting.
I really enjoy these MBA Monday posts. I’m sure many others do as well, though clearly they like talking about food a lot more. 😉
we do often get to eat during board meetings 🙂
Great post as usual and you are now down into the weeds as it relates to Boards. Having served on or been subject to Boards for a third of a century, I have the following comments:Before you start thinking about committees, take a good look at the Board and make sure you have the right skills. A Board charter, an ethics policy, a whistleblower policy and that you have thought through what can go wrong.Plan for triumph but steel yourself for disaster. Disaster is many times the prelude to success. You just have to get through it.As to committees, organize them around whichever Board member has that skill and experience. No learning on the job. Put a CPA in charge of your audit committee not an MBA #s wizard.You need the following committees:Audit, financeNominationsCompensationIndependent DirectorsThe rest of them are just crap. They are functionary as opposed to being structural.Before the first committee meeting, have committee charters drawn up. Hey, just go to the public filings of companies you admire and copy them. Modify them for your use. Don’t let a $/hr lawyer near any of them. Let the other companies pay the legal bills. Copy them. There are some great ones out ther.Make audit in charge of everything financial and yes, they are in charge of looking very carefully at the CFO’s work. Meet w/ the auditors without any members of management present. Then meet w/ the CFO present. Then meet w/out the CFO present. Trust me on this one.Develop a checklist of financial and audit responsibilities (GAAP treatment of leases by levelling, goodwill impairment, recognition of revenue policies, etc) by getting a very good PBC (provided by client) audit checklist and go down it scrupulously. If you can’t find a good one, I will send you one.Do the same thing w/ everything related to cash. Know how the cash is holding up at all times.GAAP but JLMAAP is better. JLM AAP is all about cash.This list will be your guide to things that go bump in the night. Have a long conversation w/ the CFO and the auditors on the basics — revenue recognition policies, reserves for doubtful accounts, GAAP v cash (e.g. recognition of payments on doubtful accounts) exceptions and other pertinent accounting issues. Write it down and adhere to it.If you do this, the emergencies will not be emergencies because you will have a policy in place for all of them.Nominations — what you want in a Board. If you do this at the outset, you will avoid some messy fights in the future. Don’t let a guy on the Board just because he is the deal guy from the VC firm. Get someone who is effective and can really help.Please get a guy who has gray hair, is a clever silver fox and has been to the rodeo a few times before. Get a guy who knows how to bring a boat into a tight dock in high winds. A guy with some patience and confidence. Don’t get a guy on his 4th trophy wife who is screaming out for recognition. Yoda not Darth Vader.Compensation committee — get good advice on compensation (salary, benefits, short term incentive comp, long term incentive comp, something special) and design a system with specific targets. When your guy hits the targets really reward him with an eye toward the value created.Pay the guy and put the golden handcuffs on him before he even thinks about wandering.Averages are the best of the worst and the worst of the best — commit to paying 125% of market. And then do it. What is it worth to have a completely committed CEO? Priceless!Put the damn deal in writing and sign it and review it every year. Document your reasoning. No room for misunderstanding.Since comp is such a sensitive issue do a couple of important things:1. Make the head of the comp committee the guy who is closest to the CEO and who can have a conversation without starting a war.2. Perform performance appraisals — good and bad. Do them regularly (every 6 months) and use a good exemplar. Hit all the topics.3. Tell the guy if he is doing OK and not risking getting canned and tell him when there is a real chance to get canned. Be honest and be candid. Many times CEOs have a blind spot.Independent Directors committee — very important and must religiously meet and discuss things. Think of this as a rehearsal if you go to the paywindow or if you crash and burn. Every minute spent together in the relaxed environment of the ID committee will be worth an hour when the feces hits the fan.Keep minutes for all committee meetings — not War & Peace — but a trail of bread crumbs which tells you you are not circling around back onto your own trail. Chart the progress. You will be surprised at how much you accomplish.Work your deal and take accountability for the outcomes. You know when you are hitting the sweet spot.
This comment kicks AASS….in line with GAAP and JLMAAP. AAH!I’m going to tweet a couple of quotes from it.
Feet on ground BoD / leadership advice – no surprise who wrote it.
Perfectly written – great advice all points.Seems like you have some history w/ CFOs re: comments about Audit committee meetings w/ and w/o.JLMAAP = is cash basis
I am a huge fan of hiring the very best CFO you can and, in particular, when they don’t have a Field Marshal’s baton in their napsack.The danger with Audit Committee meetings is that an overzealous Boardmember wanders off the game board and starts to discuss operational issues rather than sticking to audit issues.A good CFO — and I always send mine to those meetings alone and I never, ever inquire as to what was discussed — will guide the discussion back onto the reservation.I always play it straight and frankly I am no longer even curious as to what is being discussed or said.
Couldn’t agree more.The best partner for marketing and sales is the CFO. We often didn’t agree but were an essential partnership for finding the right path.
Killer content as always, I’ve really enjoyed the BoD series. Solid advice about making the “D” stand for directors not drama. Cheers guys.
upvoted and bookmarked. i really should have you write these posts. man what great advice.i tumbld my favorite line from this commenthttp://fredwilson.vc/post/2…
example of committee chartershttp://investor.zynga.com/g…
It all sounds responsible, thorough, prudent, professional, carefully done, etc.Let’s see, the “audit committee”:So, right along day by day there is a bookkeeper who receives the checks, writes the checks, tracks accounts payable and accounts receivable, and maintains the general ledger.Then once a quarter a CPA accountant takes the bookkeeping data and gives a quarterly report and also files the taxes.If the accountant is internal or the same as the bookkeeper, then there is an outside, independent, professional accounting firm that checks over all this.And inside the company the CEO, and CFO if there is one, checks all these checks.And of course the IRS checks the taxes and can go after the CEO if they are not happy.Now the audit committee checks the checks of the checks?Sounds a long way from the actual core work of the business.That’s a LOT of work which all together with a dime wouldn’t cover a 10 cent cup of coffee or get another 10 cents from a paying customer.Once I worked at GE Information Systems in Bethesda, MD, visited the accounting department, saw lots of desks, file drawers, stacks of paper, and people, and asked the head guy,”Is all this really necessary?”.His answer: “It could all be done just with a checkbook.”GOOD.The main point of a business is to make money, and it’s important to keep that goal centrally in mind and not get too distracted. I can accept a little distraction, but there can be too much.So, most of the crucial work of the company is writing software, and there are hackers doing that.Over them is a software version control system, a software team leader, some people doing software integration, a software development manager, some people doing software testing, maybe some software quality assurance, the CTO, the COO, and the CEO.Also under the COO is the human resources department that tracks the hacker work output and quality and is really another management tree.Then on top of all of this is the Board.Of course, maybe there will be some McKinsey MBA consultants, who have written no more than a little code, coming through giving their opinions.All this basically supported on the backs of the poor, bottom level hackers.Looks like a lot of chiefs for the number of Indians.Gee, in a pizza shop, will the dough even rise without help from the audit committee and McKinsey?Looks like to change a light bulb the CFO holds the bulb and COB, Chair of the audit committee, and the head of HR very carefully and professionally, with careful notes taken, rotate the ladder.Then there is the time for the CEO to prepare for the Board each 4-6 weeks. Then there is the expense, likely paid by the company, for the Board members to fly to and from the Board meeting, likely not coach. There is the Board dinner the night before, maybe Chez Paris, likely not McDonald’s, and at least one night in a hotel, maybe the Ritz Royal, likely not Motel 6.I won’t ask how much code the Board writes!Those hackers better write a LOT of really good code really fast.Finally, here we have a little company, with a little equity funding, and a short runway, and little reserve fuel and no alternate destination, with a minimal staff, working hard writing software, including the founder, CEO, trying to grow revenue and straining to get into the black, saving cash wherever possible, if only to save time trying not to have to raise another round of equity funding, reluctant even to send a staff member to SXSW or some other conference, with really low, low, low expense account limits based on carefully negotiated airfare, cab rides instead of a rented car, McDonald’s, and Motel 6, with the all hands Friday dinner $60 worth of cheap Chinese carry-out and two six packs of beer before working all weekend, and now with the Board we have what looks like a wildly incongruous juxtaposition: Once each 4-6 weeks several Board members get first class airfare, meals wherever, rented car or chauffeured limousine, 1-2 nights at the Ritz Royal, a big dinner at Chez Paris, and great coffee and Danish on fine china. Gee, maybe we can use just stainless steel instead of sterling silver to stir the cream and sugar into the coffee? And we know where the money for these Board meetings is coming from — the thin equity funding. And the time: The founder, CEO has to drop the real work writing software, check over and polish up the finacials, and prepare and send the Board packet. And we already know what the Board will hear: The checkbook balance is low. One new hire is taking too long to come up to speed and is not working out. One good programmer had his wife get pregnant and, for more cash, just took a job at UGE corporation. The work is on the bleeding edge and somewhat chaotic. Progress, even rapid progress, is being made, but solid projections are not possible.So, it looks like the Board meetings will be eating up one heck of a big fraction of the time and cash of this little company. And there’s no free lunch here: As the Board member investors live rich, the money they are spending is their equity funding and a highly questionable use of those funds promising deeply negative ROI and even threatening the company.I find such spending of time and money disconcerting. In simple terms, to make all this go smoothly, I’d take a conservative estimate of the cash needed to reach nice profitability, considering the chaos, setbacks, and unknown unknowns, and then, due to the cash and CEO time needed for Board interactions and to have plenty of reserve fuel, triple that cash estimate.For the flip side, if my competitors are spending all that overhead time and money and I’m just using a checkbook, then I get to save all that time and money and smile all the way to the bank. The money. Did I mention that the main goal is making money?I had a good Easter: No Board meetings, accountants, TV, or fancy dinner. But did get through some ASP.NET details on application state: http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e… http://msdn.microsoft.com/e…Now to look up some more details on the file global.asax and write the code, maybe less than 50 lines!
Hi, For every new company, there is tremendous pressure to build the correct IT platform and for web based companies, formulating a Cloud strategy is imperative. Fred, where is the CTO in your organization or are you anticipating that the numbers guy with the silver hair at the rodeo will also know a thing or two about IT? Major Industry analysts (Forrester, Gartner, IDC) predict that 42% of CIO’s will report into the CFO next year – as these major technology decisions will hit the P&L this is no surprise. Or, will you have the board make these decisions or is this another committee with different skilled people ? Denise
these are CEO decisions, not Board decisions
Does this mean there is no CIO/CTO and if so – could you expand upon this more? Is it based upon the size of the Board and/or company? What are those guidelines – thanks Denise
I can’t speak for Fred, but I believe your question is fairly simple: Again, you are talking about some work of management, e.g., CEO decisions, not Board decisions.I’m from highly concerned and skeptical up to terrified of having a Board, lean to the idea that the finances of the company should be handled with a checkbook if not just a cigar box, but even I understand and accept the basic principle that the management, especially the CEO, NOT the Board, manages the company. You’re talking management decisions, not Board decisions. There are many ways for a Board to mess up a company, but a Board that got much involved in the work you mention would be worse than even I fear, maybe even worse than the story of Pat Dunn, Tom Perkins, and HP!For the CIO reporting to the CFO, maybe that would happen and be okay at some old line company where, really, the work of the CIO’s group was handling the automated accounting and the main work of the company was a long way from the Internet, mobile, Web 2.0, information technology, and the social web.For the companies of greatest focus in this blog, that is, Web 2.0, based on the Internet and software and likely social, you could get big odds from me that would win you big bucks to a donut if any such company had the CIO or CTO report to the CFO. Ain’t gonna happen.Why? In such a company, the work of the CIO/CTO, with the CEO helping out or just doing all of it himself, is the mainline, central, crucial work of the company. In a small company, the bookkeeping, accounting, and taxes are done by the CFO if there is one and otherwise are outsourced. In a larger company on the way to an IPO or exit, the CFO worries about SarBox and meets with investment bankers and/or potential buyers, gets ready for a road show, etc. The CFO likely wouldn’t know a try-catch from a do-until, garbage collection from GIGO, a DLL from an EXE, an address space from a namespace, a Web garden from a Web farm, a URL from a URI, DNS from GPS, an IP router from an Ethernet switch, a MAC address from an IP address, a GIT from an HTTP GET, or a real address from a virtual address and couldn’t care less, but any CIO worth a used keyboard knows all of these.Once one gets to the level of detail of this blog, what Forrester, Gartner, and IDC say about averages across all of US business gets to be a bit distant, like trying to give traffic directions on a cloudy day by looking out the window flying at 42,000 feet.More generally, broad averages and high level remarks from companies like Forrester, Gartner, and IDC are a long way from, and no substitute for, conclusions based on real understanding. In particular, where the CIO reports is important and needs to be based on good details of a particular company, and given those details what Forrester, Gartner, and IDC say is just irrelevant.
Correct
Thats not what i meant
Compensation committees too often fail to identify the proper benchmarks by which performance ought to be judged (and performance-based compensation ought to be based).Share price over a 1-year period, for example, seems okay on the surface, but this can unfairly reward or punish depending upon an overall bull or bear market. Also, directly rewarding short term share price disconnects execs from long-term performance for shareholders and tempts dishonest behavior (Enron anyone?), and doesn’t reflect performance as well as measuring profitable market share gains or return on capital.Also, a simple, common-sense step in performance calculation is to offset the effect of stock buybacks from EPS targets. I bet there are dozens more of these.
Why not have committees with a three person board? Even if the three persons would be on all committees. It would at least present the opportunity for each person to act as chair of a committee. Practice makes perfect. Kinda’ like when a software company is at level one where “everyone is an artist”. They can start practicing professional development methods by “acting” as if those methods are a standard at the company. Forgive my beginner knowledge of board theory.
i think its much ado about nothing
I really appreciate the feedback guys. We’re finalizing our operating agreement this week so this conversation is very timely. We’re still super early stage which makes this kind of muddy. We need to ratify our governing documents now so that we can issue membership certificates and accept our angel round of funding, but we’re going to be working on our prototype through August of this year. So in that sense our board is going to be a board “in name only” until around August. I figured that having my co-founders on the board through these grueling (aka salary-less) months would help give them a sense of ownership.These suggestions are making me think that maybe we should in fact change our operating agreement to provide for 3 seats. I’ll be clear with my partners that once we grow out of the seed stage, they’ll be replaced with seasoned professionals with operating experience (while they continue to be managers of the LLC). We already have some great advisers working with us, some of which would be good candidates. Once we raise a series A we’ll amend the operating agreement to (among other things) increase the number of seats to 5. By that point we’ll probably have to change into a C-Corp anyway.
You have given evidence of being thoughtful. Keep it up. Good luck.
I’m with you. That’s true.
I’ll put you down as the chair of the comp committee 😉