Brad Feld - Startup Boards

Engage with Management and the Board Collectively and Independently: Outside counsel should build relationships with the board and management. The CEO should encourage and facilitate these relationships. Non-management board members should demand direct access to counsel and be responsive to outside counsel's requests for engagement with them on matters, especially those involving management conflicts of interest.

Coach Management on What Should Go to the Board: This may be the first time an entrepreneur has worked with a board, and they need coaching on when and how to engage with a board. Some issues should be dealt with in a properly convened board meeting, while others should be discussed between the CEO and individual directors outside the board meeting. Boards should expect outside counsel to help the CEO with these judgments.

Keep the Cap Table Clean: Emerging-growth companies have complex cap tables with multiple classes of stock, options for employees, and advisor equity and warrants for debt financing and partner incentives. The average emerging-growth company has a more complex capital structure than most small public companies. Consequently, outside counsel should help maintain good capitalization and other corporate records, including minutes and records of board and stockholder approvals.

Be Open to Criticism, Don't Be Defensive, and Request Constructive Feedback: Lawyers pride themselves on having a high degree of precision. At the same time, business transactions aren't perfect, exigencies often drive sub-optimal results, and outright mistakes sometimes occur. Your outside counsel should be open to hearing those concerns, and your board should have a mechanism to provide this feedback. Generally, everyone learns something from a well-developed feedback loop. And, as with all feedback, provide it early.

Never, Ever, Bend the Truth or Be Anything Less Than Transparent: I rarely have observed an attorney lie, but many are willing to be less than transparent. You should demand absolute transparency with outside counsel. When they live up to this obligation, they shouldn't be criticized by the board or management if there is a disagreement.

Mike Platt, Cooley, Partner

1 1.Data from Steven Kaplan and Per Stromberg, “Financial Contracting Theory Meets the Real World: Evidence from Venture Capital Contracts,” Review of Economic Studies 70 (2003): 281–315. An interesting paper on the importance of independent directors is authored by Brian J. Broughman, “Independent Directors and Shared Board Control in Venture Finance” (July 18, 2011). Indiana Legal Studies Research Paper No. 1123840. Available at SSRN: http://ssrn.com/abstract=1123840or doi:10.2139/ssrn.1123840.

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