BOARD OF DIRECTORS: Friend or Foe?

You the founder CEO have a new boss: The board of directors. Is that true or false?

True: The legal hierarchy places the board of directors above the Chief Executive Officer and reserves all rights except for those specifically delegated to the CEO in writing (the bylaws of the corporation). Thus, the CEO has to get prior permission to act on many things.

False: The CEO is running the company, is expected to lead it to success (or ruin) and the power is in his hands. Thus, the CEO does what has to be done and informs the BOD after the fact.

So how does it work in real startups? Here are some observations from my all-too-many years working with startups:

• Board members do not want to run the company -- but they have to under emergency conditions. They want the CEO to succeed. Only when the CEO  fails does a board member have to step in to a temporary position to keep the company going until a new CEO is found. This happens often in startups. Why? Because most startups fail. One top tier VC taught me this when he said "For me to take time out to step into the CEO's shoes is like trying to fill a black hole in space: it is an enormous drain on my time and energy that I want to get rid of as soon as possible."
  
• Venture capitalists dominate power on boards of directors. Neutral fifth or seventh board members (such as me) are there to officially balance voting power (e.g. In a five member board, settling voting ties between 2 management and 2 VCs), but such voting never happens. If there is a big dispute, the issue is resolved outside the board meetings (and may include lawyers). Issues are resolved and later everyone arrives at board meetings knowing exactly what will transpire at the meeting. There are no surprises. That is how the board got its name: "Because at board meetings, everyone is bored." The wag that told me that understood: Settle differences before entering the meeting and everyone will be more productive.
  
• Serial entrepreneur CEOs know they must manage their boards of directors. Savvy about their businesses and the need for upcoming rounds of financing, experienced startup CEOs focus on communicating frequently, informally, outside board meetings, with each board member. And homework is assigned to board members. It is recorded and examined at the next board meeting (e.g. Call the CEO of Giant Inc; Email the Wall Street report on the market segment in China; etc.). No surprises. Work. Results. I recall a fresh CEO hired half a decade ago who immediately got a grasp of his new company because of homework assigned to each of his board members. Every member was excited to deliver, and they did. It worked great.
  
• Perspective and wisdom are the special skills brought by outside (non-management) board members. They will know where industry trends are going, who is a leader and laggard, what person is going to become a candidate for employment because NewcoXYZ is about to be acquired by Giant Inc., and so on. They will know what competitive terms are for the next round of capital to be raised. Their scars will bring wisdom about marketing, strategy, pricing, employee motivation, selling tactics and a ton more (if you have the right board members). Ignore their perspective and wisdom at your own (career) risk. Even the most arrogant CEO I have worked with treated his board with respect because he valued perspective and wisdom from board members. He went IPO in four years and now it is a multi-billion dollar winner.
  
• Board members stay, CEOs don't. When the startup gets into serious trouble, the board will ask the CEO to step aside. The case of the floundering founder is common. Yes, part of the trouble is due to the board waiting too long to replace the struggling CEO. But most boards give extra time for the troubled CEO to fix the company. If not, the end is swift and quiet. Founders will be offered alternative positions (Chief Yahoo, Jerry Yang, founder and first CEO of Yahoo is the classic example). Non-founders depart. It may sound shocking, but CEOs are so commonly replaced that they should plan on a stay of only a few years. My research says co-founder CEOs last less than three years, most less than two. Cold facts, but true.
  
• When fear is driving you (the CEO), it is time to depart. Fearing the board is a sign of insecurity that will quickly become evident to the entire board of directors. The cure is to embrace the board, listening instead of defending, seeking advice instead of stopping it, and encouraging transparency and access to all employees at anytime by any board member. That is confidence at work. It will be reflected in your work. I recall a few years ago one CEO I coached offered any and all employees the chance to observe any board meeting (legal matters and compensation sessions excluded). Most did.That is confidence.
  
• Adviser boards are not boards of directors. A small group of experts experienced with your markets and technologies can be of significant benefit to you, the CEO. They are very active, often including consultants paid for project work (as well as the standard retainer and stock option). I have worked with life science companies that have done amazing technical work with such boards of advisers who gathered monthly for years to assist the company's technical staff. Internet companies I have observed use a wide ranging collection of advisers who rarely meet as a group. Advisers do not manage anyone. They talk to people, a lot.
  
• Serious boards of advisers and the odd outside board member get cash retainers ($1,000-$6,000 per month) and a stock option (that could be worth at least $1 million at IPO). That is serious compensation. So pick wisely. Do not take large investor cash amounts from such advisers. If you have to fire them it is awkward. Your non-VC board member is often a co-founder and will work with a retainer and the stock he got as a co-founder.

BOTTOM LINE: Boards need to be managed. Managing is all about getting people to do things they do not want to do. That is why we call our superiors "bosses". The board may often be pushing you to do things you do not want to do. That is how life works in startups with aggressive VCs on the board. But you should also be managing them. That makes life better for you, the company and the board. When you understand this, it will be a significant part of your unfair advantage.