Posts from Board of directors

The Board Of Directors: Guest Post From Matt Blumberg

In last week's guest post Scott Kurnit advised entrepreneurs to put a friend on the Board and keep co-founders off. This week we'll continue the theme of "who should be on your Board?" with a re-run of a post that Matt Blumberg wrote for Brad Feld earlier this year. The topic is "what makes an awesome Board Member." I am the person who made the point about firing executives. Brad Feld is the person who downed two shakes in one meeting.

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I’ve written a bunch of posts over the years about how I manage my Board at Return Path.  And I think part of having awesome Board members is managing them well – giving transparent information, well organized, with enough lead time before a meeting; running great and engaging meetings; mixing social time with business time; and being a Board member yourself at some other organization so you see the other side of the equation.  All those topics are covered in more detail in the following posts:  Why I Love My Board, Part IIThe Good, The Board, and The Ugly, and Powerpointless.

But by far the best way to make sure you have an awesome board is to start by having awesome Board members.  I’ve had about 15 Board members over the years, some far better than others.  Here are my top 5 things that make an awesome Board member, and my interview/vetting process for Board members.

Top 5 things that make an awesome Board member:

  • They are prepared and keep commitments: They show up to all meetings.  They show up on time and don’t leave early.  They do their homework.  The are fully present and don’t do email during meetings.
  • They speak their minds: They have no fear of bringing up an uncomfortable topic during a meeting, even if it impacts someone in the room.  They do not come up to you after a meeting and tell you what they really think.  I had a Board member once tell my entire management team that he thought I needed to be better at firing executives more quickly!
  • They build independent relationships: They get to know each other and see each other outside of your meetings.  They get to know individuals on your management team and talk to them on occasion as well.  None of this communication goes through you.
  • They are resource rich: I’ve had some directors who are one-trick or two-trick ponies with their advice.  After their third or fourth meeting, they have nothing new to add.  Board members should be able to pull from years of experience and adapt that experience to your situations on a flexible and dynamic basis.
  • They are strategically engaged but operationally distant: This may vary by stage of company and the needs of your own team, but I find that even Board members who are talented operators have a hard time parachuting into any given situation and being super useful.  Getting their operational help requires a lot of regular engagement on a specific issue or area.  But they must be strategically engaged and understand the fundamental dynamics and drivers of your business – economics, competition, ecosystem, and the like.

My interview/vetting process for Board members:

  • Take the process as seriously as you take building your executive team – both in terms of your time and in terms of how you think about the overall composition of the Board, not just a given Board member.
  • Source broadly, get a lot of referrals from disparate sources, reach high.
  • Interview many people, always face to face and usually multiple times for finalists.  Also for finalists, have a few other Board members conduct interviews as well.
  • Check references thoroughly and across a few different vectors.
  • Have a finalist or two attend a Board meeting so you and they can examine the fit firsthand.  Give the prospective Board member extra time to read materials and offer your time to answer questions before the meeting.  You’ll get a good first-hand sense of a lot of the above Top 5 items this way.
  • Have no fear of rejecting them.  Even if you like them.  Even if they are a stretch and someone you consider to be a business hero or mentor.  Even after you’ve already put them on the Board (and yes, even if they’re a VC).  This is your inner circle, and getting this group right is one of the most important things you can do for your company.

I asked my exec team for their own take on what makes an awesome Board member.  Here are some quick snippets from them where they didn’t overlap with mine:

  • Ethical and high integrity in their own jobs and lives
  • Comes with an opinion
  • Thinking about what will happen next in the business and getting management to think ahead
  • Call out your blind spots
  • Remembering to thank you and calling out what’s right
  • Role modeling for your expectations of your own management team
  • Do your prep, show up, be fully engaged, be brilliant/transparent/critical/constructive and creative.  Then get out of our way
  • Offer tough love…Unfettered, constructive guidance – not just what we want to hear
  • Pattern matching: they have an ability to map a situation we have to a problem/solution at other companies that they’ve been involved in – we learn from their experience…but ability and willingness to do more than just pattern matching. To really get into the essence of the issues and help give strategic guidance and suggestions
  • Ability to down 2 Shake Shack milkshakes in one sitting
  • Colorful and unique metaphors

Disclaimer – I run a private company.  While I’m sure a lot of these things are true for other types of organizations (public companies, non-profits, associations, etc.), the answers may vary.  And even within the realm of private companies, you need to have a Board that fits your style as a CEO and your company’s culture.  That said, the formula above has worked well for me, and if nothing else, is somewhat time tested at this point!

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The Board of Directors: Guest Post From Scott Kurnit

I am developing a standard format for these MBA Mondays series. I do five or six posts on a topic and then I solicit four or five guest posts to wrap it up. Today we begin the guest posts on the Board Of Directors series we've been doing for the past six weeks.

Hopefully everyone who has been following this series on Boards understands the point that you want independent directors on your Board and that the best choice for independent directors are fellow entrepreneur CEOs who have been through what you are going through.

One of the most sought after independent directors in the world of internet startups is Scott Kurnit who has started a couple internet companies and has sat on eight boards including several public boards. If you are not familiar with Scott, here is an interview he did with me in late 2010 at the Paley Center.

I asked Scott to lead us off in the guest post section because I know that he has some strong opinions about Boards and Board composition. And he shares some of them with us in the guest post below.

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Fred has done his usual fabulous job outlining the critical issues with Boards. Today I’m going to address two concepts that surprise people every time, end up generating lots of head nods, then usually don’t happen. These suggestions clearly fit into the art of the board more than the science. And it’s the unwillingness to depart from traditional norms by those around the table that stop them from happening.

1. Your best friend should be on the Board, and
2. No one who works in the company other than the CEO should be on the Board.

Why would you take a valuable Board seat for your best friend? Doesn’t every seat need to be occupied by people with industry expertise, financial acumen or years of board experience? That’s logical, but what about having someone who you trust with your life? Someone you’ll truly believe when the Board is telling you that you’re not performing or that the financing you seek is wrong or that you’re spending too much or your request for stock options is too aggressive?

Ideally, your best friend has industry or financial or board expertise – but even if not, having someone who has your back… who tells you the unvarnished truth… that you believe in an instant… is in everyone’s interest. This seat is critical. Fill it.

As a repeat CEO and board member, I try to fill this role of CEO pal if a CEO doesn’t have one. I’m well aware of my fiduciary responsibilities to shareholders, but I try to think of the CEO first since if he performs, the company performs and changing out CEOs is a wrenching and often disastrous activity. A CEO should have someone he can tell anything. That makes a better company and a better outcome for shareholders.

Now, for my second point which will certainly raise the hackles of co-founders who are on the board, work their butts off and may have as much stock in the company as you do: The fact is, there’s only one CEO, one leader. And that’s why people who work for the CEO can’t also be the CEO’s boss. Yes, fundamentally, that’s what Boards are… the CEO’s boss.

Here’s the simple logic. The CEO can’t be in charge 29 days out of the month and then report to her subordinates on the 30th day. That screws up the crispness and clarity for the 29 days. A CEO should not be giving compensation or making non-objective decisions concerning subordinates, in order to make sure her own comp and Board decisions get approved on day 30. Ridiculous. You often end up with a horrible combination of dysfunctional board member and insubordinate… subordinate – all wrapped up in one person. You can’t be both a worker and a boss at the same time. Sorry, co-founders… you can observe at Board meetings… but you don’t get a vote. Period. And when the CEO tells you to leave the Board room… well, she’s the boss.

Since I have this awesome space courtesy of Fred, I could go into why Board members should have no ego, need to come to every board meeting in person, need to give performance reviews to CEOs, should only do email during Board meetings within a designated 5 minute block every hour and create an environment where everyone knows everything with total transparency. But, I won’t abuse the privilege of this space or your time.

Just get a pal on the board and keep your pals who work for you off the board. I promise, your company will be better and return higher rewards for all concerned.

Thanks Fred.

#MBA Mondays

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.

#MBA Mondays

The Board Of Directors: Board Chemistry

One of the least discussed elements of a Board of Directors is the chemistry among the Board members. It is critical to a well functioning Board but not always considered in Board construction.

Like a well functioning startup or a top flight sports team, the chemistry between the participants on a Board must be strong. That doesn't mean they need to be best friends who hang out with each other outside of the job. It does mean they must respect each other and lean on each other's strengths to get to the right decisions.

When you are building a Board, you must think about chemistry as much as you think about it when you hire a team. You want to have a Board that can work well together.

And you need to invest in chemistry after you've assembled your Board. I like regular Board dinners before or after the meetings. There is nothing like breaking bread and having a beer or a glass of wine to get folks to relax and connect. I also like annual Board offsites where the group spends an entire 24 hours together, usually talking about and plotting strategy for the coming year(s). These activities outside of the Board room are critical to developing and investing in Board chemistry. Once obtained, you cannot let Board chemistry calcify. You must continue to invest in it for the long haul.

Sometimes you will have a Director (or two) that just doesn't fit in. Unless that Director has a contractual right to their seat (usually as a result of investment) or brings a critically important skill set to the Board, you should seek to remove that person from the Board and replace them with someone with similar skills who will fit in better.

Even when an investor has a contractual right to a Board seat, you can get one of their partners to replace them in an effort to get better Board chemistry. Don't take this approach lightly however. It will be seen as a hostile move by the person you are seeking to replace. I have been involved in these situations a few times and it must be handled delicately, usually via the senior partner of the firm involved. If the person who is serving on your board that you are seeking to replace is the senior partner of the firm involved, then you have an even more difficult problem.

If there is one point that I want to drive home more than any other point in this entire series on Boards, it is that your company needs a strong Board and you must do everything in your power to make sure you get one. Don't accept that you have a dysfunctional Board and you have to live with it. If you have a bunch of investors on your Board that you can't get rid of, seek to add a bunch of independents to balance them out. And then build chemistry between the independents and the investors.

Group dynamics are an interesting thing. Adding or subtracting one or two people from a five to seven person group can dramatically change the chemistry. So pick your Board members wisely and if you have an issue, deal with it to the best of your powers.

I think Matt Blumberg, CEO of our portfolio company Return Path, has done an incredible job in developing Board chemistry. He has removed and replaced a number of Board members over the years, including an investor director. He invests heavily and continuously in Board chemistry. And he has assembled a set of strong personalities with very diverse strengths (and weaknesses) and he gets more out of us that I could possibly imagine. He should write a book on this topic.

I bring up Matt and his success as a way to suggest that seeking advice and counsel from other entrepreneurs and CEOs can be a good way to think about how to improve your own Board. And you might want to consider some of them for independent Board members while you are at it.

Your company is going to have a Board. It should not be an afterthought. It needs to be well constructed, well managed, and it needs to function easily and efficiently with strong chemistry. When you achieve all of those things, you will see that a great Board is a tremendous asset to a company, and you should pat yourself on the back for doing something that very few manage to accomplish.

#MBA Mondays

The Board Of Directors - The Board Chair

Continuing our series on The Board Of Directors, this week I'll talk about the role of the Board Chair.

The Board Chair runs the Board Of Directors. He or she is a Board member with the same roles and responsibilities as the other Board members. But in addition, the Board Chair is responsible for making sure the Board is doing its job. The Board Chair should make sure the Board is meeting on a regular basis, the Board Chair should make sure the CEO is getting what he or she needs out of the Board, and the Board Chair should make sure that all Board members are contributing and participating. When there are debates and disagreements, the Board Chair should make sure all opposing points of view are heard and then the Board Chair should push for some resolution.

The Board Chair should be on the nominating committee and should probably run that committee. I do not believe the Board Chair needs to be on the audit and compensation committees, but if they have specific experience that would add value to those committees, it is fine to have them on them. Either way, the Board Chair needs to be on top of the issues that are being dealt with in the committtees and making sure they are operating well.

Small boards (three or less) don't really need Board Chairs. In many cases the founding CEO will also carry the Chairman title, but in a small Board, it is meaningless. Once the Board size reaches five, the Board Chair role starts to take on some value. At seven and beyond, I believe it is critical to have a Board Chair.

It is common for the founder/CEO to also be the Board Chair. I am not a fan of this. I think the Chair should be an independent director who takes on the role of helping the CEO manage the Board. The CEO runs the business, but it is not ideal for the CEO to also have to run the Board. A Chair who can work closely with the CEO and help them stay in sync with the Board and get value out of a Board is really valuable and CEOs should be eager to have a strong person in that role.

When a founder/CEO decides to transition out of the day to day management but wants to stay closely involved in the business, the Board Chair is an ideal role for them, assuming that they were responsible for recruiting or grooming the new CEO. If the founder is hostile to the new CEO, then this is a horrible idea.

When Boards get really large, like non-profit boards, the Board Chair is even more important. I've been on a few non-profit Boards over the years. I don't really enjoy working in the non-profit world, but I do it from time to time. I have had the opportunity to watch a couple amazing Board Chairs at work and I've learned a ton from them. The partnership between Charles Best and Board Chair Peter Bloom at Donors Choose is a thing of beauty. Same with the partnership between John Sexton and Board Chair Marty Lipton at NYU. For profit CEOs and Board Chairs could learn a lot from watching these masters at work.

When it works, the Board Chair role is hugely impactful. It allows the CEO to spend their time and attention running the business and not worrying about the Board. The Chair will manage the Board and when the CEO has issues with the Board, the Chair will be clear, crisp, and quick with that feedback and will help the CEO address those issues.

Many CEOs find working with a large group of people who have oversight over their work and performance challenging. It makes sense. Who has ever worked for six or more people at the same time. How do you know where you stand with all of them? How do you know what they want you to do? How do you know what is on their minds? The Board Chair's job is to give the CEO a single person to focus on in dealing with these issues.

The Board Chair job is hard, particularly when the company is in crisis, but it is also extremely gratifying. It is an ideal job for entrepreneurs and CEOs to take on when they are done starting and running companies and want to move into something a little less demanding. I'm always on the lookout for people who can take on this role in our portfolio companies. The good ones are few and far between and worth their weight in gold.

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The Board Of Directors - Selecting, Electing & Evolving

Every company should have a Board Of Directors. At the start it can simply be a one person board consisting of the founder. But it should not stay that way for long. Because if you are your own board, you won't get any of the benefits that come with having a board. These benefits include, but are not limited to, advice, counsel, relationships, experience, and accountability.

The shareholders elect the Board of Directors. But there is usually a nominating entity that puts directors up for election by the shareholders. If the founder controls the company, then he/she is usually that nominating entity.

I am a fan of a three person Board early on in a company's life. I generally recommend that a founder put himself/herself on the board along with two other people they trust and respect. The election of directors in this scenario is simply a matter of the controlling shareholder voting them in.

This situation changes a bit when investors get involved. If the founder retains control, then the situation does not have to change. The founder can still nominate and elect the directors they want on the board. However, investors can and will negotiate for a Board seat in some situations. This is less common for angel investors and more common for venture capital investors.

The way investors negotiate for a board seat is usually via something called a Shareholders Agreement. This is an agreement between all the shareholders of the company. It contains a bunch of provisions, but one of the provisions can be an agreement that the shareholders of the company will vote for a representative of a certain investor in the election of the Board of Directors. The representative can even be named specifically. For many of the Boards I am on, this is how my seat is elected. For venture capital investments, this is a very typical provision.

Adding an investor Director does not mean that the founder loses control of the Board. It can remain a three person Board with one investor director and two founder directors. Or the Board can be expanded to five and the investors can take one or two seats and the founder can control the rest. These two situations are common scenarios when the founders control the company.

As a company moves from founder control to investor control, the notion of an independent director crops up. And independent director is a director who does not represent either the founder or the investors. I am a big fan of independent directors and like to see them on the Boards I am on. Boards that are full of vested interests are not good boards. The more independent minded the Board becomes, the better it usually is.

When the founder loses control of the company (usually by selling a majority of the stock to investors), it does not mean the investors should control the Board. In fact, I would argue that an investor controlled Board is the worst possible situation. Investors usually have a narrow set of interests that involve how much money they are going to make (or lose) on their investment. It is the rare investor who takes a broader and more holistic view of the company. So while investor directors are a neccessary evil in many companies, they should not dominate or control the board. The founder should control the board in a company he or she controls and independent directors should control a board where the founder does not control the company.

When and if a company goes public, the Shareholders Agreement will terminate and public company governance standards will dictate how a board is selected and elected. There will most likely be a comittee of the Board that is called the Nominating Committee. That committee will select a slate of directors that will be put up for election by all the shareholders of the company at the annual meeting. Most public company Boards have staggered Board terms such that a subset of the Board is elected every year. Three year and four year terms are most common.

It is possible for the shareholders to put up an alternative slate. In theory, this approach could be used in both private and public companies, but in reality it is almost entirely limited to public companies. This will be percieved as a hostile move by most companies and they will fight the alternative slate of directors. This "aternative slate" approach is most commonly taken by "activist investors" who take a meaningful minority stake in a public company and agitate for changes in the Baord, Management, and strategic direction of the company. But it can also be used in a hostile takeover effort.  It is very very rare for an alternative slate to take control of a company, but it is fairly common for a new director or two to get elected in this way.

Boards should evolve. Boards should recruit new members on a regular basis. Board members should have term limits. I like the four year term. But I've been on Boards for much longer. I'm in my thirteenth year on one board and my eleventh on another. These are not ideal situations but they involve companies I invested in while I was with my prior venture capital firm and I have a responsibility to my partners and the founders to see these situations through.

A much better example is Twitter, where I was the first outside Director, taking a board seat when Twitter was formed in the spinout from Obvious and USV made its initial investment. Over time Twitter added several investor directors and then started adding independent directors. By last fall, Twitter had the opportunity to create a board with two founders, a CEO, three independent directors, and one investor director. As a shareholder, that sounded like the right mix to me and I voluntarily stepped down along with my friend Bijan who had led the second round of investment.

The point of the Twitter story is that Boards evolve. In the first year it was me and two founders and a founding team member. In the second year it was me and Bijan, two founders and a founding team member. In the third year it was three investors, two founders, and two senior team members. In the fourth year, it was three investors, two founders, a CEO, and three independents. And now it is one investor, two founders, a CEO, and three independents. Many of these changes in the Twitter board happened at the time of financings. That is typical of a venture backed company.

In summary, the shareholders elect the Board. That is the essential truth in every company. But how they elect the directors can be very different from company to company. For public companies, it is largely the same for all. In private companies, as JLM would say "you get what you negotiate for" so negotiate the Board provisions carefully. They are important.

Most importantly, build a great board. They are not that common. But you owe it to your company to do that for it.

#MBA Mondays

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

MBA Mondays Series: The Board Of Directors

John Revay sent me an email suggesting I write a post on The Board Of Directors. I've got a better idea, a whole MBA Mondays blog series on this topic. I have come to enjoy the series format for MBA Mondays. It works well.

So I will write a a few posts on this topic:

– the role and responsibilities of the Board Of Directors

– how a Board Of Directors is selected, elected, and evolves

– the role of the Board Chairman

– Board chemistry and why it is so important

– Board meetings, how to make them work well

– Board committees – audit, comp, and governance

If I'm missing something important, please let me know in the comments.

Then I'll invite several guest posts. I have a few people in mind who I've come across over the years who know a lot about this topic. I'll probably end with three or four guest posts.

It should be a good series. I'm looking forward to writing it.

#MBA Mondays

Continuous Feedback

We have a portfolio company that will remain nameless that does something I want to call out as super awesome. Every board meeting, as homework after the meeting, they ask each board member to fill out a simple Google Form with two questions; three things we are doing well and three things we need to do better. They've been doing that every board meeting that I've been to.

They use this information as part of their continuous feedback loop to improve their management of the business and in turn improve the business. Based on their progress since our investment, I'd say it works pretty well.

This is one example of a larger theme I am noticing in our portfolio and the startup world at large. Companies are using simple web tools to get continuous feedback on their performance. They are using this kind of approach to do performance reviews of everyone in the organization, they are using this kind of approach to get feedback from their customers, and they are using this kind of approach to get feedback from their Board, investors, and advisors.

This makes a ton of sense. Startups are rapidly changing systems. If you use an annual review cycle, you aren't getting feedback at the same pace that you need to adapt and change the business. Doing this kind of thing continuously matches the frequency of the feedback loop with the frequency of the business.

I've written in the past about continuous deployment and how I have seen that work really well at some of our portfolio companies. Continuous feedback leverages many of the same principals and has many of the same advantages. If you haven't tried this approach, you might want to. From what I've seen, it works.

#VC & Technology

Bored Of Directors (continued)

I did a few posts on this topic back in 2004 when I was just starting to get this blogging thing.

the original

the followup

the second followup

These posts were inspired by my friend Brad Feld's initial post on the same topic.

So it's not surprising that when Brad, Amy, The Gotham Gal, and I got together for dinner in Paris this past weekend, we got to talking about board meetings. Brad is frustrated with them. I am too. There is too much reporting and not enough discussing going on. And there isn't enough face to face interaction.

One of our portfolio companies has a board of five and the directors are in three locations. Last month we had a meeting where all but one of the directors was in the room. It was the best meeting we have had in close to a year. Near the end of the meeting, I put a fairly meaty strategic topic on the table and we did not have enough time to do it justice. The founder/CEO suggested we reconvene a few weeks later with everyone in the room.

That reconvention happened last week and we had every director in the room and no agenda. We got right to the "big meaty strategic topic" and talked it over for two hours. That was a terrific meeting, by far the best meeting we have had in the company's history.

So what can we learn from this story?

1) get everyone in the room

2) less reporting

3) more discussing

For this to work, the board has to commit to face to face meetings. The CEO has to keep the Board up to date in between meetings so reporting doesn't have to happen in the meeting. And the Board needs to understand the business and the market well enough to be able to have a substantitive discussion about the key issues the business is facing.

None of these are easy to accomplish. Everyone is busy and not enough investors make the committment to understand the business well enough to participate in a serious strategic discussion. If anyone is to blame for bad board meetings it is the VCs and other non management directors who are not doing their jobs well enough. And I plead guilty as charged in this regard. I can and should do a better job as a board member on many of the boards I am on.

But ultimately it is the entrepreneur's board and the entrepreneur's problem. They need to call bullshit on bad meetings, bad boards, participating by phone, and so on and so forth. And everyone in the startup sector should wake up to the fact that too many board meetings suck. We can and should do better. For our companies, for our management teams, for our investors, and for ourselves.

#VC & Technology