Brad Feld - Startup Boards: Getting the Most Out of Your Board of Directors

Contents

Cover images: Silhouettes of Business Couples and Silhouettes of Business Executives iStockphoto/4x6, Board Room and Paper Work iStockphoto/A-Digit; Boardroom Illustration by C. Wallace

Cover design: C. Wallace

Copyright 2014 by Brad Feld and Mahendra Ramsinghani. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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ISBN 9781118443668 (Hardcover)

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ISBN 9781118516829 (ePub)

Foreword

The phone rang at the appointed hour. My client, a software company CEO, was calling for his regular session. I picked up the phone.

Hello

Why the hell does my board act like that?

Good morning, James, I answered and we both laughed.

We talked through the upcoming financing. Some of the investorsfolks who came into the company only in the last roundwere already jockeying around terms and prices of the upcoming round. Some of the other directorsinvestors who had been with the company since the beginningwere also beginning to draw a hard line around terms that they would find acceptable.

In a sense, while they were all directors, as investors they were beginning to play a game of chicken with the companys financingeach holding fast to a position deemed best for the shareholders they represent and yet, as the negotiations ticked on, the companys ability to actually raise the needed funds could be jeopardized.

After the session, I asked him if I could quote him.

Sure, he said, just let me know if I ever end up with an actual video recording of me calling [the board member] a fuckheadits not that Id be bothered by that, its just that Id want to make sure I sent the link to all my friends.

A year ago I was sitting in the office of the CEO of a company on whose board I served. The recently elected chair and the CEO were screaming at each other and, as usual, I found myself trying to mediate.

What you dont understand, said the chair rising from his chair and trying to tower over the seated CEO, is that youre here, and he held out his right hand, palm down, and the board is here, and he moved his left hand on top of the right, again palm down, and Im here, and he placed his right hand over the left.

Capo dei capiboss of bosses.

My clients question was spot on: Why does this happen? What is it that makes the relationship among board members, investors, and management so tricky? And even when you remove the notion of director as investor (or investor representative) you can still end up with troubled relations.

The board/management relationship is tricky, complex, and nuanced. There are few structures within traditional businesses that are quite like it. Most businesses, indeed most organizations, are built on some variation of a command-and-control structure. Because of their inherent hierarchical nature, its often clear whos in charge, who makes the decisions, and whos ultimately responsible for what.

Even in businesses where the power and decision making reflects not the pyramid of classic command and control but the inverted pyramid of the ways in which information and therefore accountability should flow, theres relative clarity.

But when it comes to boards of directors, confusion is often the norm and, as a result, theres accompanying frustration and anger. For example, does the CEO work for the board of directors or the company? Does the board work for the company? Who holds individual board members accountable for their actions? What is the relationship between board and staff members?

Underlying all of this is the responsibility to represent the shareholders.

Ive served on dozens of boards of directorsthis includes public and private companies, for-profit businesses, and not-for-profit organizations. I think the core troubles stem from a misunderstanding of the key elements of the roles.

Directors arent quite like any other management position in an organization. They have power but often lack the information to wield that power as well as managers. They have perspectiveoften significantly more experience than senior managementbut, by the nature of their responsibility, they are disconnected from the day-to-day operations.

Directors need to remember they have a delicate balancing act of influencing without dictating, and engaging and sharing their experience and perspective by virtue of their gravitas as much as a result of their power.

Management, too, needs to remember that the task of being a director or a trustee is unlike any other job one has ever had. Theres an explicit accountability that goes along with the job, and that fact, combined with the implicit lack of information, can cause most folks to feel terribly anxious and to act in awful ways.

This book by Brad Feld and Mahendra Ramsinghani will help everyone on both sides of that divide to take a needed step back, see things from the other view, and work toward making the board as functional as possible.

JERRY COLONNA

Life and Business Coach

Retired Venture Capitalist

Chair, Naropa University

Acknowledgments

The original inspiration for the Startup Revolution series came from a conversation we had several years ago. Mahendra and Brad met briefly in person in Ann Arbor at an event that Brad and his partner Jason Mendelson held for Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist . Mahendra followed up a few days later with an e-mail suggesting that we write a book about boards of directors together. A year later, a five-book series was launched, with Startup Boards as book number four.