Brad Feld - Startup Boards

A board has other vital roles beyond holding the CEO and team accountable.

Organize Your Thinking: With company communication running on email, Slack, text messaging, and numerous other applications, the quality of communication deteriorates, especially around significant decisions. Scribbled bullet points or half-baked spreadsheets enter the communication flow between team members. Long memos, overwrought internal wikis, or endless PowerPoint presentations waste enormous time, slow down decision-making, and become a crutch for critical thinking. A board forces your team to think through and question all aspects of what they are presenting, consolidate the communication, and commit to decisions.

Match Patterns: An experienced board member links their historical experience to your current situation. They'll see a chain of events unfolding, reflect on something they experienced at another company, or identify a dangerous path you are heading down. The board member provides content, advice, and introductions to other founders or CEOs who have had a similar issue and can be a resource for you. While the board member might not have answers to every situation, it creates more context to help you steer your company around icebergs and avoid the damage lurking beneath the surface. The wonderful aphorism often attributed to Mark Twain, “History doesn't repeat itself, but it often rhymes,” applies.

See the Forest for the Trees: You're close to your business and in the weeds of day-to-day activity. Your board isn't. A board member can point out things you completely miss, especially when mired in your operating results, team dynamics, or performance. While the board member can help you one-on-one, the collective board creates space for you and your leadership team to periodically engage in a higher-level discussion about the business.

Drive Intellectually Honest Discussion and Debate: Even strong executive teams have difficulty disagreeing with a dominant CEO. The vast majority of boards don't. A healthy board challenges you and your team's assumptions while demonstrating how to engage in honest debate to get to an answer.

Create a Forcing Function for Deadlines and Quality: A board creates a cadence for running your company around a set of regular, recurring deadlines. Unless you're in a business that has significant external deadlines imposed on it by partners or customers, deadlines often become elusive, regularly slip, or become vague targets, as in “next week,” “next month,” or “later this year.” While many deadlines are arbitrary, a lack of accountability can lead to procrastination and excuses. A public commitment to a deadline is powerful. While you may not reach it, decide to change it, or prioritize other activities, you'll have a board to keep you accountable.

Support Transactional Activity: A CEO shouldn't negotiate a round of financing, the sale of the company, or an acquisition of another company alone. Many board members have more negotiating experience than the CEO and should be resources for helping improve a deal. Savvy VCs may know which investor groups make good partners and which ones to avoid. Finally, the board can veto any decision a CEO may have made if the board perceives the decision not to be in the company's best interests.

The CEO reports to the board. However, the board doesn't run the company—the CEO does. A common refrain of Brad's is, “My most important decision as a board member is whether I support the CEO. My job is to do everything I know to help the CEO succeed. If I don't, it's my job to work with the CEO and the board to get back to where I support the CEO. Ultimately, if the board loses confidence in the CEO, it's our job to replace the CEO.” Effective board members understand the nuance between supporting the CEO and having the CEO report to them.

A board is a legal construct with a well-defined set of requirements and responsibilities that fall under the term “corporate governance.” The board's formal duties include the legal concepts of duty of care and duty of loyalty . Boards also have smaller working groups, including audit, compensation, and nominating committees. While startup boards should be agile, it's useful to understand the formal requirements.

As a startup grows, the number of stakeholders increases. In the beginning, a startup has a small team, often just the founders. A few early employees are added and given stock options. The company raises a small amount of money, adding a few angel investors and possibly a VC. The company releases its product, gaining customers and suppliers who become stakeholders in the startup. More employees are added, and, if it's a venture-backed company, the company raises a VC round. Soon, you'll have a lot of divergent interests among the stakeholders. The board is ultimately responsible for navigating any conflicts that arise.

It's essential to put a structure in place early to ensure the board and leadership team minimize conflicts of interest and understand how to navigate them. Good boards invite counsel to participate in meetings to help the company follow best practices. While entrepreneurs are rightfully concerned about racking up legal fees in such situations, Eric Jensen (Cooley, Partner) states, “Just as a VC is focused on building the company using best practices, a good attorney does not focus just on legal aspects. We act as advisors first, sitting in board meetings for free and alerting the CEO to any warning signs we spot in these board meetings.”

The state laws in which the company is incorporated, and the company's charter documents (the Articles of Incorporation and Bylaws) establish the legal duties of a board member. Federal securities laws and the Securities and Exchange Commission (SEC) add bonus rules for public companies.

A fiduciary duty is an obligation to act in the best interest of another party and is the highest standard of care the law can impose on someone. A fiduciary is expected to be completely loyal to the person or entity they owe the duty, who is also called the “principal.” Specifically, the fiduciary mustn't put their interests before the interests of the principal and must not profit from their position as a fiduciary unless the principal consents. Every board member has a fiduciary duty to the shareholders unless the company is a Public Benefit Corporation (PBC), where, under Delaware law, the fiduciary duty is to the stakeholders as defined in the company's charter.

My attitude when I'm on a board is to be supportive of management teams, to be a sounding board, and to offer constructive criticism at times. The board shares the responsibility to the company and the shareholders and we're not just cheerleaders—there are legal and fiduciary responsibilities that are often cut-and-dried. For instance, our board was contacted by an employee who said, “I'm quitting, and I want you to know that some of the numbers that you're being shown at the board meetings aren't really accurate.” As a board we need to get to the truth of that; is it a parting shot from a disgruntled employee or do we have a management team that isn't representing things accurately? We hired an internal audit firm to look at the books and tried to understand how it added up to what we were being shown. It turned out that the numbers were accurate, but that situation was cut-and-dried: we were given information that we had to investigate.

Legal and fiduciary responsibilities to me are in some ways easy, but the more difficult decisions for a board are the ones that are not legal or fiduciary, but ethically important. For example, we had a member of a firm where we were investors post comments that were homophobic on Twitter. That's not a legal or fiduciary issue, but we asked if we could coach that person. Being on a board is more than legal and fiduciary responsibilities but also involves ethical responsibilities. You need to make sure that the right thing happens.