Guest Post By Mahendra Ramsinghani - The Business of Venture Capital – (Author, Investor, Mentor) 

Preparing your board package is a bit of an art and a science. The sample slide deck below offers a framework for consideration (please see “Notes” section of slides as well). The primary goal for the CEO is to communicate with the board, in adequate detail. Your board needs to hear about your progress (or lack thereof).

Here are some points to consider:

a) Progress metrics: Each startup has different metrics and at the very heart of it, you as CEO / founder need to prioritize these over the next 12 months. These metrics could include adoption, revenues or simply, customer discovery / development milestones. The art form lies in picking the metrics that matter – quite simply, ask yourself – what is the one development that would help the company to be seen as a leader in this space? Can this development help raise the next round of capital at increased valuation? This is not about pandering to investors but knowing what constitutes value creation.

b) Significant developments / changes: Board members need to know of any significant shifts. Fired your CTO? Pivoted to a new market?  Increased burn rate by a factor of two? All of these are important enough that your board needs to know – ideally before the board meeting. At the meeting, these topics are the ones that yield a robust discussion. Remember, a board meeting is not a one-way brain-dump from CEO to board. It is a two-way street and if you do not pause, ask questions or breathe – it will ultimately lead to frustrations. The board is there to help but you have to let them help you.

c) Financials: No matter how cool the product feature set may be, make sure you include financial statements in your board package. These are ideally prepared by your part-time CFO and include your income statement, balance sheet and cash flow statements. For very early stage companies, its best to offer a simple snapshot of

(i) Cash at hand (ii) burn rate and (iii) months before we need additional capital.

Ultimately, remember that a board package is nothing but a prop for communication and discussion. Your goal is to ensure that (a) your board gives you a thoughtful input / feedback on the company’ progress (b) knows where you need help and (c) is able to help you along the way.

You can download the original PowerPoint Slideshow Here.

Mahendra Ramsinghani

I manage and lead all investment activities for Invest-Detroit’s First Step Fund, a micro-finance fund that is focused on seed and early stage investments in the region. Since its launch, the Fund has invested in 40+ companies across technology, healthcare and energy sectors.

In 2011, I finished a labor of love – a book titled “The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies (Wiley Finance). See: http://amzn.com/0470874449

As Mentor-in-Residence at University of Michigan’s Office of Tech Transfer , I helped spin-out a Life Science tools start-up, 3D Biomatrix. In 2012, this company was recognized by Wall Street Journal Technology Innovation Awards (chosen among 536 entries).

At the MEDC, I led the efforts for development of two Fund-of-Funds programs that was signed into a legislation and currently deploys $200 million in VC Funds. I serve on the investment committee of two seed funds and on the Board of University of Michigan Social Venture Fund.

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Guest Post By Andrew Sherman – Jones Day- (Partner)

My latest book, Essays on Governance, was inspired by the events of the past ten years which has placed the discipline of corporate governance under a strategic as well as a regulatory microscope and has shareholders and the markets challenging boards to be accountable and carefully follow best practices which drive informed and objective decision-making.  We have lived through several periods over the last decade when it appeared to many that our financial markets have been on the brink of complete collapse.  And while calm and patient heads prevailed and we have experienced remarkable resiliency, it has not been without significant government intervention in the form of bailout packages and QE1, QE2, and QE3 and extensive legislature reform at the SEC, NYSE, FINRA, NASAA and PCAOB levels.  Dodd-Frank legislation brought us not only greater oversight over the financial services industries, but also greater incentives for “whistle-blowers” to come for to report governance or leadership breakdowns and mandated that public-traded companies include an advisory resolution on their ballots to approve executive compensation, opening up a new and much more transparent “say-on-pay” paradigm in the participation of both ordinary shareholders and their activist compatriots and proxy advisory firms.

As entrepreneurs and leaders of emerging growth companies, we must pledge to our board and to our shareholders that leadership is about protecting the interests of others ahead of your own.  We must lead by example.  Leadership is about absolute dedication to the legacy of an institution or organization which is more important than the legacy or reputation of any one of its individual mentors.  Leadership is about liberating yourself from conflicts of interests or hidden agendas.  Leadership is about accepting responsibility for the consequences of your decisions, your actions and your inactions.  Leadership is about setting aside your own personal beliefs in favor of the mission and values of the organization, though it helps if the two are aligned.  Leadership requires those placed in a position to govern others to walk and talk the traits of integrity, modesty and self-efficacy, transparency, flexibility, emotional intelligence, empathy, confidence and decisiveness, accountability and patience balanced with a sense of urgency.  Leaders must provide a sense of calm in times of crisis and inspire and motivate teams to accomplish organizational objectives.  Leaders must be clear and concise communicators.  As Colin Powell once said “Great leaders are almost always great simplifiers, who can cut through argument, debate, doubt (whining, rhetoric and turfmanship) to offer a solution everyone can understand.”

Whether you as the leader of your own company warmly embrace or actively resist principles of good governance, you may soon have no choice.  Too many trends are converging to force directors and leaders to be accountable to the stakeholders that they govern.  The transparence and interconnectivity of the social media, the rapid increase of shareholder activism groups and lawsuits, the new whistleblowing rules under Dodd-Frank, the significant expansion of the staffs and budgets of federal and state regulatory and enforcement agencies, the era of compliance in an attempt to combat fraud and distrust, are all driving forces which will ultimately create life under the near-perfect microscope and governance in the nearly-clear fishbowl.  The passage of new laws, the significant upticks in shareholder activism and the robust activity by government regulators have ushered in the need for a new era of transparency and effective governance.

Board composition must include the right mix of skills, industry experience, market knowledge, diversity and battle scars.  The board must be thick-skinned enough to withstand criticism and scrutiny, but its processes, deliberations and decision-making must be transparent enough to be subject to periodic evaluation and healthy debate.  The key element of this delicate balance is alignment.  Board skills must be aligned with strategic plans, board composition must be aligned with market demographics and consumer patterns, board interests must be aligned with stakeholder value and board commitments must be aligned with the fulfillment of fiduciary duties.  Shared vision, shared values, shared goals and shared rewards are the best ways to close the gap between those who lead and those who are lead.

Risk assessment, management and mitigation has been elevated to one of governance’s top priorities for both emerging growth and more established companies.  Risks come in a wide variety of shapes and sizes and the sources vary from Mother Nature to shareholder activists to computer hackers to disgruntled employees to volatile markets to fierce competitors to hyper-active regulators to rogue financial traders to social media rabble-rousers to political turmoil and sovereign debt crisis, to nuclear accidents to civil discord to just plain old-fashioned negligence, pour judgment and human error.  Unforeseen risk is all around us and the board must be at the forefront of predicting risk, measuring risk, preventing risk and mitigating the consequences of risk.  Unexpected surprises and getting blindsided are no longer acceptable explanations or excuses when significant shareholder value is at stake.

Boards must proactively anticipate risks in many disciplines, not passively react to them when problems arise, or even worse, hide under the mahogany table when challenges surface.  Contingency planning (having an evacuation plan, a fire drill map, the ability to pivot, a “Plan B” ready to go, etc.) is all part of strong and effective governance.  Board members need to seek out the advice of outside legal and accounting professionals to craft these plans, as well as from certified risk managers, such as the 21,000 financial and operational risk professionals who are members of the Global Association of Risk Professionals (GARP), based in Jersey City, New Jersey, (www.garp.com).  The bottom line is that if today’s board member is going to be held accountable (and potentially personally liable) when and if the proverbial “poop” hits the fan, then you better be trained to be pretty handy with a shovel.

As we all know, great companies come and go – the board and executives primary role is to keep them great and well-managed for a sustainable long-term future.  IBM celebrated its 100^th year of existence on the shoulders of great leaders and the vision and ability to transform and evolve its mission and business model.  The only market condition which remains certain is change itself.  Board members must keep their eyes on the road and their ears close to the ground to anticipate change and re-direct the ship accordingly.  The root of the word “director” is in the terms “direct” and “direction” and it must be the board at the helm of corporate strategic navigation.

To navigate properly, like the Cheshire Cat, first ask “In what direction do we want to go and why?  Then ask, “how ready are we to truly begin and complete this journey?”  Applying principles of intellectual honesty and integrity in identifying challenges in organizational capacity and readiness.  Then ask, “what concrete steps need to be taken and what responses will we need to complete the journey?  An empty canteen is as about as valuable as forgetting to pack it altogether.  Then ask, “how do we keep momentum going during the journey itself?”  Many companies stall, pull into a rest stop and never get back on the highway or simply forget to follow a roadmap as their mission derails and their companies unravel.  Forward progress is critical.  Finally, inasmuch as life is a journey, not a destination, ask “how can we as a board set new goals, new metrics and target new destinations so that our company continues to evolve, grow and drive shareholder value?”  As leaders, if you can be committed to asking these five questions on a perpetual basis, the road to strong governance will be well-paved.

Andrew Sherman focuses his practice on issues affecting business growth for companies at all stages, including developing strategies to leverage intellectual property and technology assets, as well as international corporate transactional and franchising matters.

He has served as a legal and strategic advisor to dozens of Fortune500 companies and hundreds of emerging growth companies. He has represented U.S. and international clients from early stage, rapidly growing start-ups, to closely held franchisors and middle market companies, to multibillion dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions.

Andrew has written 17 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property. He also has published many articles on similar topics and is a frequent keynote speaker at business conferences, seminars, and webinars. He has appeared as a guest commentator on CNN, NPR, and CBS News Radio, among others, and has been interviewed on legal topics by The Wall Street Journal,USA Today, Forbes, U.S. News & World Report, and other publications.

Andrew serves as an adjunct professor in the M.B.A. programs at the University of Maryland and Georgetown University and is a multiple recipient of the University of Maryland at College Park’s Krowe Excellence in Teaching Award.

As Brad and I are putting finishing touches to the book “Startup Boards”, a friend alerted me to something you don’t see often. A “job posting” for a “Board Member” on LinkedIn !

What more, over a hundred people had applied. “Its on fire” as Linkedin points out. Would a startup board member be recruited via an advertisement? Unlikely. Startup boards are driven by (a) relationships  of lead investor (b) skills and experience of the board member. Many times a VC will say “We should have this person on the board because….” Often, the independent board seats go unfilled. As the VCs network tends to be larger, the responsibility of shaping the board defaults to them.  First time CEOs / founders do not necessarily pay much attention in shaping their board – this needs to change (a point we emphasize strongly in this book). Often, the closing of the first round of capital is such a romantic high, or a relief, that CEOs and founders ignore the board structure and its possible dynamics. This comes back to haunt the entrepreneurs later, especially during tougher times.

Here are a few lessons we learn from eGain’s advertisement:

First, define the role: The ad is pithy and succinct. (See full text of this ad: eGain Board Member position description ) The four bullet points you see above summarize the role of the board member. CEO selection and their performance assessment is the primary role of any board member. The secondary role is to assist the CEO in anyway possible. Yet, notice the one and only qualifier: the applicant must have been a C-Level executive in a Global 500 B2C corporation. If a board member has walked in the shoes of a CEO, they know how to support a CEO well.

Cast your net wide: What are some tactics founders use to search for board members ? If you rely only on your network, you may not know what you are missing. As they say, if you do what you have always done, you will get what you always got. If you played with the same people all your life, the game will be predictive. LinkedIn offers interesting ways to search for board members. Mark Rogers, an entrepreneur who often writes about board matters has started a company Board Prospects to help find and recruit board members. Some founders we talked to have used recruiters to cast a wide net. Others have scoured public company 10-Ks to find the best and brightest. The best CEOs recruit a board member, as you would recruit an executive of your team, says ReturnPath CEO, Matt Blumberg. Some of his blogs on boards are worth reading.  

Monitor their performance: So once you hire an executive, good CEOs ask – is this relationship working? Does this person listen and get along with others ? (Chemistry is often the primary cause of disruptions) Do they serve the company ? Or just their own egos? Do they say what they are going to do – and then live up to it? In Startup Boards, we present simple ways to assess your board’s performance. In my book,  ”The Business of Venture Capital” I have a whole chapter highlighting how good VCs add value on startup boards. Finally, if you think a board member is wasting their time and yours, call them out. Your startup is your life – its way too precious to be treated in a cavalier, lackadaisical manner.

eGain’s board member advertisement is short and simple. And its on fire – 124 people are trying to be on its board. As a startup CEO, it offers simple lessons – define the role, cast your net wide and let the best and brightest compete to be on your board.

Guest Post By Andrew Sherman – Jones Day – (Partner)

“Cheshire Puss,” she began, rather timidly, as she did not at all know whether it would like the name: however, it only grinned a little wider. “Come, it’s pleased so far,” thought Alice, and she went on. “Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—“ said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“–so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

Ask any serious boatsman whether they can get to their destination without a rudder and they will look at you as if you are insane.  In the context of governance for leaders of emerging growth companies, a “rudder” is a steering device designed to articulate a clearly communicated set of goals, a conviction and a culture designed to achieve them and a backbone to enforce goals and performance metrics.  Over the last ten to fifteen years, many citizens and shareholders have become frustrated that our leaders appear rudderless or directionless, which wastes taxpayer dollars and time and duties and damages shareholder value.

We want our leaders to pick a clear direction – one way or the other – even if we don’t agree with it – just to avoid stagnation, deadlock and complacency or be hit head on like the deer staring at the oncoming truck without moving one way or the other.  Or worse yet, when we perceive leaders as being like Alice – essentially apathetic – as to their destination, that is even more frustrating than complacency because it consumes resources and gets us nowhere.

When Congress can’t reach decisions, boards can’t dictate a clear strategy and executives can’t effectively lead or motivate, we have a nation run by “Alices” and an economy which will remain weak, flat or broken.  Entrepreneurs know that if we aim for nothing, we’ll be nothing.  If we have no clear goals (or seem happy running in place like the hamster on the wheel), then we’ll go nowhere.  If we ignore the signals to us to pro-actively move in one direction or the other, then our ability to make progress will die a slow death, like a cancer slowly eating away at a body.  We cannot allow this country or the companies in it which we rely upon to generate tax revenues, innovation and new jobs, to wander aimlessly from one experience to another, one policy to another or one strategic plan to another.  Empires have fallen and companies have filed bankruptcy when leaders are allowed to fall asleep at the switch and rudders either don’t exist or are dysfunctional.

One of the most essential roles of the board of directors of an entrepreneurial or established company is to weigh-in each year on the company’s overall goals and objectives and then hold leaders accountable for the achievement of these plans.  Board meetings should be “checkpoints” or “tollgates” to measure progress or help navigate through any forks in the road where management is torn as to which direction to choose.  Boards sit in the same proverbial tree as the Cheshire Cat, providing navigational tools to the executives responsible for executing strategy but must never tolerate a response or report which is as directionless or rudderless as Alice’s “I don’t know,” or even worse “I don’t care.”

Leadership is all about informed decision-making based on a window of information which is often either too early or too late.  Colin Powell had a great “40/70” rule for decision-making in the field of battle – if he had less than 40% of the data he needed to make a decision, it was probably too early to decide, if he had more than 70 percent, it was probably too late.  In the context of corporate governance, I would suggest that the rule be in the 55/80 range in order to protect corporate assets and drive shareholder value.

Even when a board feels that they have the right window of information to make an informed decision, there should always be the step of skepticism before the step of decisiveness.  Being decisive is critical (or we wind up like Alice), but boards and leaders need a voice and a process that confirms that the right quantity of information and the right level of analyses has in fact been gathered and performed.  The board needs a “devil’s advocate.”  In other words, when the Cheshire Cat (with its famous mischievous grin) gives its advice, someone even higher up the tree has asked all the right questions before Alice moves forward.  The “devil’s advocate” can be a particular board member, a board committee or even an outside board advisor.

The Tao of the Cheshire Cat is that if an organization does not know where it is going, then any road will take it there.  Strategy maps are only needed after a clear destination has been selected.  No citizen or shareholder wants to be part of a nation or a company which is rudderless, directionless and apathetic.  The productivity of any one employee is directly aligned with the clarity of the strategic direction which leaders communicate on a regular and consistent basis.

Andrew Sherman focuses his practice on issues affecting business growth for companies at all stages, including developing strategies to leverage intellectual property and technology assets, as well as international corporate transactional and franchising matters.

He has served as a legal and strategic advisor to dozens of Fortune500 companies and hundreds of emerging growth companies. He has represented U.S. and international clients from early stage, rapidly growing start-ups, to closely held franchisors and middle market companies, to multibillion dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions.

Andrew has written 17 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property. He also has published many articles on similar topics and is a frequent keynote speaker at business conferences, seminars, and webinars. He has appeared as a guest commentator on CNN, NPR, and CBS News Radio, among others, and has been interviewed on legal topics by The Wall Street Journal,USA Today, Forbes, U.S. News & World Report, and other publications.

Andrew serves as an adjunct professor in the M.B.A. programs at the University of Maryland and Georgetown University and is a multiple recipient of the University of Maryland at College Park’s Krowe Excellence in Teaching Award.

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Guest Post By Jerry Colonna – The Monster in Your Head ( Professional Coach)

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 investors—folks who came into the company only in their last round—were already jockeying around terms and prices of the upcoming round. Some of the other directors—investors who’d been with the company since the beginning—were 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 company’s financing—each holding fast to a position deemed best for the shareholders they represent and yet, as the negotiations would tick on, the company’s ability to actually raise the needed funds could be jeopardized.

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

“Sure,” he wrote, “just let me know if I ever end up there with an actual video recording of me calling [the board member] a ‘fuckhead’ – it’s not that I’d be bothered by that, it’s just that I’d 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 don’t understand,” said the chair rising from his chair and trying to tower over the seated CEO, “is that you’re 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 I’m here,” and he placed his right hand over the left.

Capo dei capi—boss of bosses.

My client’s question was spot on: Why does this happen? What is it that makes the relationship between 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, it’s often clear who’s in charge, who makes the decisions, and who’s ultimately responsible.

Even in enlightened business, as people like Warren Bennis have pointed out, 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, there’s relative clarity.

But when it comes to boards of directors, confusion is often the norm and, as a result, there’s often 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 the actions? And what is the relationship between board and staff members?

And underlying all of this is the responsibility to represent the shareholders.

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

Directors aren’t quite like any other management position in an organization. They have power but often times lack the information to wield that power as well as managers. They have perspective—often times significantly more experience than senior management but, 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. There’s 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.

Everyone on both sides of that divide need to take a step back, see things from the other view, and work towards making the board as functional as possible.

As my friends and colleagues are tired of hearing me say, I’ve never seen a board guarantee an organization’s success but I have seen it guarantee its failure.

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Guest Post By Eric Remer - PaySimple - (Founder & CEO)

On the morning of January 16^th, I read your blog post, The Best Approach to a Board Package.  The post got my attention for two reasons. First, the recommendation was simple and contrarian. Second, my company, PaySimple, had a scheduled board meeting 13 days later.  PaySimple has been in business for six years, and before founding the company, I started two other companies and worked as an investment banker. In short, I had been to a lot of board meetings, and I had experienced many of the same frustrations discussed in this post.  Board meetings are often “ineffective, poorly run, or just plain boring,” as you said.  Although I have had informative and successful board meetings in the past and have done my best to create the most relevant and engaging meetings for my directors, it always felt like a flat presentation to a group of people who at times would rather be somewhere else.

The suggestion raised in this post was aimed at creating a genuinely engaged conversation with management and the board, and the concept was simple to implement.  The post alluded to the strange practice of sending out a board package days ahead and then, days later, simply reviewing that same package.  Your idea was to create an “interactive board package” by posting the board materials in advance on Google Docs and then inviting all the attendees to read, consume, react and comment publicly (to the closed group) in the Google Doc.

So we did it. And it required, as you said, almost no behavior or technology shift.  This suggestion was especially timely in that this meeting was a big year-end review and budget review for 2013.  So we had a tremendous amount of important material. Focus would be especially helpful.

Three days ahead, we posted our materials on Google Docs and requested feedback.  We followed the prescription from the post to a tee. After receiving comments, we sat as an executive team and crafted a new agenda and a (very) few new slides directly commenting on some of the questions that required quantitative analysis.

The meeting was fantastic!  Focused, engaged, and very helpful for the board and management.  We thought we would be quicker than our four-hour allowable, but the board members were so engaged that we used all the time staying laser focused on the hardest issues.  There were no departmental presentations. No regurgitation. Very little multi-tasking on cell phones. Just a vibrant back and forth conversation.  At the end of this meeting, I experienced a sense of alignment and understanding at a level I hadn’t experienced before with my boards.   Our board members loved the new format, and we have definitely created a new baseline for board meetings at PaySimple.

What will I change going forward? First, I would get the board package out a full week ahead of the meeting and request comments within three days.  This will minimize some of the haste (which was fun once, but might be less fun every quarter) of preparing the game-day agenda. Second, I may find more opportunities for my managers to engage.  The topics covered at this particular meeting were often more global issues that entailed more activity from me personally.  I think it is great when each member of my team gets an opportunity to vibrantly interact with the board.  This issue may shift naturally depending on the topics that the board wants to focus upon, but it is something to be aware of.  It is clear to me that the more engagement up front, the more engagement on meeting day.

This post transformed our board meeting process.  It was a huge win for PaySimple.

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Guest Post By Ben Huh – Cheezburger – (CEO-Founder)

We have 5 Board of Directors. Their names are:

• Brad Feld (Boulder, CO)
• Greg Gottesman (Seattle)
• Ben Huh (Yes, I legally report to myself. Xzibit and I feels.)
• Rich Levandov (Boston)
• (Unnamed, open seat)

What does a Board do?
The Board is another tool of business. You can use it wisely, or it can use you. Legally, as a corporation, we are required to do certain things according to the legal documents we all signed (this gets really complex and there are a million ways to do it) but the role of the Board, regardless of who is on it and why, is to: look after the best interests of the shareholders/owners of the corporation.

In this case, our Board members have a specialty (not all businesses are the same), they represent the world of high-risk, high-reward Venture Capital investment and invest in startups of a certain, smallish size. (Vs. say, a large publicly-traded company, or a charitable organization.) The Board of Directors are also not the same thing as Board of Advisors. Advisors don’t take on legal responsibility of looking after the company, Board of Directors do. Often, this gets confused, but BoD is the real deal where the rubber meets the road. BoA is a loose collection of advisors.

In human history, we have an illustrious pattern of fucking up the art of representation, oversight and management — over and over again. Mob rule? Meh. Despotism? Sucked ass. Monarchy? High failure rate. Democracy? Not bad. Companies are no exception. The Corporate Board is a method of shareholder representation, oversight and management.

A healthy Board should be independent, thoughtful, supportive, and aligned. This is the art of corporate governance that’s a real thing and a seldom visible and seldom credited KEY CONTRIBUTOR to the success and failure of many companies. Corporate governance is fascinating to a business nerd like me, and again, like all things in business, deceptively simple, yet virtually impossible to master. (Major BoD failures make the news, but successes don’t. Hello, Enron!)

There are many duties (legal, ethical, and quasi) of a board. Here are some examples:

• Hire/fire the CEO (Shareholders vote — based proportionally on the number of shares each one controls and the Charter of the company– to elect the Board of Directors, who in turn hires/fires the CEO. My legal and ethical obligation as CEO is to the Board and by extension the shareholders of Cheezburger.)
• Review and approve executive hires
• Review and approve the official plan
• Review and approve the financial controls and accounting
• Review and approve mergers and acquisitions
• Etc.

If the Board members are smart, well-connected, and helpful, FANTASTIC! But there is actually no law that requires each company to have smart, well-connected, and helpful Board members.

I’ve been exposed to a fair number of board interactions through my friends who are CEOs of their own companies. I also sit on the Board of one other company, Circa (a way to be on the other side of the table) where I try to not be a shitty Board member.

What’s it like working for your meta-self and the Board?
We have excellent Board members. (I’m not just saying that because Brad gets these blog posts emailed to him.) Because we were profitable, we were able to reject about a dozen different interested VCs before we took money from this group — because I couldn’t tell if they were good or bad until Greg and Brad came along. Our investors were heads and shoulders above the rest.

The key to what makes them great is that:

1. They believe that the best way to create a great return on their investor is to support the CEO.
2. They believe in WORKING HARD to do it, and they love doing it. As Rich told me once “it’s a great gig, if you can get it.”

That’s all I ask of them. Really. That’s it.

I’ve met a lot of VCs who do not work hard to help their companies. They come to a meeting every few months, don’t read up on the business, dish out irrelevant advice, and then leave. Bad Board members waste the time of the company — this is the cardinal sin of Board members.

I can list many examples of our Board members busting ass at all hours, on and off vacation because I asked for help. They take me at face value and while they are not afraid to challenge my thoughts and assumptions and whip me out of a funk, they trust me and defer the decisions to me — no matter how much or how little stock a CEO owns, it’s their company until it’s not.

And in return, I don’t hold back, and I don’t put up a wall. They see me at my best, and also at my worst.

I talk to them quite often. Before the days of the Internet, the Board operated on a far slower, monthly, or quarterly schedule. You’d spend hours in meetings reviewing reports and financial data. Now, we send them information as soon as we have it, which keeps them and us more connected, productive, and allows us to use our valuable Board Meetings to discuss opportunities and issues, not reports.

Side-note: How does the business of a Venture Capital investor work?
Greg, Brad, and Rich all have to look out for the best interests of THEIR investors (called Limited Partners, or LPs for short) who gave their companies (venture capital firms, VC for short) money (capital) to invest in companies like ours through a financial instrument and a legal entity called a “fund” (a VC firm usually operates several separate funds at any given time since a fund’s lifecycle runs only for several years).

It’s the job of venture capitalists (usually called “partners” in a VC firm) to invest the money of their LPs from a particular fund and spread the risk out over many investments. And in about 5-15 years, if things work out, they send the LPs a bigger box of money (return on investment). If the VCs are good at this, they get to raise new funds, and do it over again.

Their jobs depend on our success too.

Problems always have answers:
A bad CEO comes in just as many flavors as bad Board members. One of the things I have gotten better since that day was not just presenting the problem, but also showing what we’re doing to fix, mitigate, not-repeat it. If it’s my legal duty to be honest with the board, and if it’s my ethical duty to tell them as quickly as possible, it was all my learning as CEO to present the best possible solutions with the problem.

Good Board members won’t tell you how to solve the problem. Like good teachers, they show you the direction, they prod, they support, they suggest, but the solution is mine to own, and I am accountable and responsible for the decisions I make. It’s a strange thing, but I can disagree with my Board for weeks, but once I make the decision, they support me 100%. I count myself lucky to have people like this back me. They serve as role models for me as to how to be an employee and manager.

Related articles

• Investing in and Joining the Board of Rover.com
• How 5 Successful Entrepreneurs Bounced Back After Failure
• Who You Want On Your Board

On MLK day, the subject of diversity comes alive. And while we address diversity in Startup Boards via the axis of gender, it does not minimize racial challenges. The following post applies to diversity without diluting the premise of competence.

As Startup Board’s book cover design was being finalized, Brad nudged for a change of the cover. He didn’t yell, with dramatic flourish, “Stop the Press” ( which I have always wanted to do ) but quite simply said –  ”we need more women on the cover – more than just one.”

I didn’t even realize that we had a cover with a “male dominated” board. Call it “business as usual” lazy thinking, call it carelessness “whats the big deal anyway” or any other name – I am embarrassed!  And I am glad Brad asked for this change. Because if he didn’t ask for it, the status quo would prevail. That’s unacceptable and we need your help to change that. Here is why:

1) Business as usual will not get us there:  All male dominated startup boards  = business us usual. These boards have worked for the large part but we dont know what we are missing. And what got us here will not get us there! In Startup Life Brad and Amy write about “Lack of Diversity” in startups and believe that in 20 years, the gender ratio would be equal. Thats realistic. But it should also make us wonder – why so long? Why can’t we do better? Do more faster? And what are we missing by accepting the status quo?

2) Our brains become ossified: At least, mine has. Otherwise I would have stopped to ask the same question Brad did? We reached out to a number of women (Startup CEOs and VCs alike) to find out more on this lack of diversity. Cindy Padnos of Illuminate Ventures told us a fascinating story of how, while serving on a startup board, the question of adding a new board member came up. This was a male board + Cindy being the lone woman. Several candidates were proposed. Cindy recommended the name of a woman, who by far, was the most qualified. The rest of the board members readily accepted the recommendation. Cindy pointed out that “It was more of a top-of-the-mind issue – everyone readily agreed to bring her on, but hadn’t thought about her.” The other board members even knew her. But its kinda like the book cover design – till Brad pointed out, I thought the cover was fine.  We see this in society on a number of different levels – its not necessarily by design, but by subconscious patterns of generational behavior.  Do you think a women can play a trombone?

3) The heartbreaking story of Abbie Conant: Abbie Conant applied for the position of a trombonist at the Munich Philharmonic.  Candidates auditioned behind a screen – a blind audition — and she was judged the best amongst 32 men.  When she stepped out from behind the screen, the judges were shocked – a woman? Then begins her ordeal. They suddenly felt she did not have enough physical strength. Or nerves. Or empathy. She could not play because she did not have enough lung capacity. But Abbie Conant was a true fighter. Thirteen years after she entered the orchestra with a blind audition, the German courts ruled that Ms. Conant be placed in the same pay and seniority group as all of her male solo-wind colleagues. Read her heartbreaking story here. And now ask yourself, what if Abbie was your mother? Your wife or daughter? Would this all-male ossified behavior – women cannot play trombones – make you mad? If we dont watch our patterns, we wont progress.

4) The business case for diversity: There is plenty of data for publicly traded companies that show how women make boards better. “Gender Diversity and Performance” – a report released by Credit Suisse (Aug 2012) shows some interesting data.  In an analysis of 2360 companies using over 14,000 data points,  publicly traded companies with more than three women on the board, had a market cap 3X higher than those with no women. What does that say about value of women? Three times smarter ? Return on Equity is 4% higher when you had at least one women on the board. Debt was lower….no matter which index you used, the business case is evident. Granted its with larger / public companies and but its hard to argue that such benefits cannot be seen with startups. Diversity of thought, experience, intellectual horsepower counts. Yet it starts with our ossified thinking – the data is there but we need to break our own patterns. We need to try harder.

5) The Yin and the Yang:  Wendy Lea, CEO of GetSatisfaction says, “Its a sign of an evolved CEO who balances out the yin and the yang. At the end of the day, we are talking about the feminine energy and masculine energy – how these two can help the startup grow and become successful.” Indeed, the emotional side and the analytical side are equally important. But at times, an all male board can become self congratulatory. Lucy Sanders, Founder of National Center for Women in Technology (NCWIT) has been on several boards and reminds that “its about performance at all times yet women can raise some issues quickly.” Lucy pointed out a board situation where in an all-male board cast, the VP of Sales continued to miss his targets. Yet he doled out great punchlines and smooth talk – the board bought it all along till Lucy raised her hand. (She was the solo woman on that board). That VP of Sales was ultimately fired – that action may have saved the company.

In summary, its upon all of us to make a conscious effort to improve the diversity ratio – we need comptent people to help entrepreneurs. No compromises there – but we need to make a direct, thoughtful effort to attract board members of diverse backgrounds. And we need to prove Brad wrong that it will take 20 years to change the ratio. It took Abbie Conant only 13 years, after all, to fight those hardscrabble German philharmonic dudes.

Guest Post By Scott Maxwell – Open View Partners – (Managing Director & Founder)

7 Board Roles Every Expansion-Stage Company Needs to Have

About a year ago, I published a post on our Labs site that compared the brilliance of the NBA’s Dream Team (no, not the one that included LeBron James and Kobe Bryant last summer) to the management team that expansion-stage companies should be trying to build.

I talked about why a great CEO is reminiscent of Michael Jordan coming into his prime, but why Jordan (and great expansion-stage CEOs, for that matter) couldn’t have won an Olympic gold medal on his own. Jordan needed Hall-of-Fame talent like Magic Johnson, Larry Bird, John Stockton, Patrick Ewing, Charles Barkley, David Robinson, and Karl Malone to help him do that.

Along those lines, expansion-stage CEOs need to surround themselves with a talented team of finance, sales, marketing, product development, and customer service executives, and managers who compliment their strengths. That variety of skill and knowledge is the foundation that often takes a business from “good startup” to “great, big business.”

On that note, I’d like to piggyback off of the Dream Team analogy for this post, and talk about why the same principle of assembling the right kind of talent applies to far more than a management team. It applies to your board of directors, too.

Like an expansion-stage management team (or a basketball team, for that matter), there’s much more to assembling a board than simply appointing company co-founders and recruiting the most high profile former executives or brand name investors you can find. While there are specific board seats that every company needs to fill (investor seats, management seats, and independent seats), the actual board roles you recruit should be dictated by your company’s biggest skills gaps and needs.

Which is why, as venture capitalist Brad Feld wisely writes on his blog, it is so critical to perform a gap analysis before taking any steps toward building an expansion-stage board. You need to be able to pinpoint the skills you have, understand the skills you need, and identify the skills you could benefit from the most long-term. Without that information, you’ll end up blindly recruiting board members that may or may not deliver real value to the company.

So, what are the core roles that make up an expansion-stage board of directors Dream Team?

As Feld writes in the aforementioned post, growing businesses typically benefit most from financial expertise and specific product, sales, or marketing skills. Oh, and a deep Rolodex never hurts.

In my experience, however, there are seven specific board member personas that are most valuable to an expansion-stage board:

1) The Head of the Audit and Compensation Committee

This person should have previous financial experience (e.g., a former CFO or public auditor), and he or she must work with the CEO, CFO, and other board members to ensure the financial and legal well being of the business. Additionally, this role is responsible for ensuring that the company’s compensation plan is under control and competitive.

2) The Ying to the CEO’s Yang

This role is typically filled by a board member who is complimentary, in some way, to the CEO. For instance, if the company’s CEO has a sales background, this person might possess a stronger product development or customer experience background. The idea, quite simply, is to identify someone that can help the CEO think outside the box and broaden his or her own skill set.

3) The Personification of the Company’s Target Market

Typically filled by an independent board member, this is someone who possesses a keen understanding of the company’s target market. They tend to possess a strong network of target buyers, and can monitor the pulse of — and trends in — your market. For instance, if your company’s primary buyer is the CMO of enterprise software companies, you might recruit a former CMO of a similar company to fill one of your board seats.

4) The CEO Advisor and Mentor

While the previous three roles were more externally focused, this role has much more to do with to the company and its CEO’s skill set gaps. The CEO advisor and mentor should be a retired CEO that has guided a company through the expansion stage. They can provide the CEO with relevant insight, expertise, and feedback, particularly as the business begins to scale.

5) The Exit Strategist

While company executives focus on scaling the business, someone needs to begin to think about the company’s strategic direction, economic model, and exit plan. Should the business shoot for a merger or acquisition, or is the better exit strategy an IPO? If a company has accepted outside financing, this role is typically the responsibility of investor board members.

6) The CEO in the Flesh

It might sound obvious to suggest that a company’s CEO must also be a board member, but some boards fail to elevate the CEO to the level they should. That’s a critical mistake. If the CEO is supposed to command respect and serve as the company’s primary leader, how can he or she do that without commanding respect from the board? As board members, a CEO may not have the same power that they do over their executive team and managers. It’s still their job, however, to lead and manage the board.

7) The Chairman of the Board

This role might seem obvious, too. Deciding who should fill it, however, can be a tricky issue. There are two approaches that companies can typically choose from:

• The CEO also assumes the role of Chairman: In this case, it’s a good idea to appoint a senior director who can work with the CEO/Chairman to ensure that other board members’ voices are being heard.
• An independent board member serves as Chairman: If the company’s CEO is already stretched thin and can’t afford the time to serve as Chairman, it’s generally a good idea to appoint a director who can organize the board, keep everyone on the same page, run a good board meeting, and foster board cohesion. Ideally, this person will be an independent board member.

So there you have it.

Ultimately, I like the way that respected venture capitalist Fred Wilson sums up the importance of board chemistry and cohesion in a post on his blog:

“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.”

All sports analogies aside, an expansion-stage board is a team. And like any team, you need to construct yours with a set of people who add unique value to the organization. The more you can acquire unique perspective and align it with your management, operational, and strategic goals, the more likely it is you’ll derive something meaningful from your board.

The key is to spend the appropriate amount of time constructing your board initially. Otherwise, you’ll spend an inordinate and unnecessary amount of time deconstructing and reconstructing it later.

In November 2008, T.A.McCann, (or TA) an entrepreneur based in Seattle was getting restless. (We’ll save the Sleepless in Seattle analogy for another story

It was time for him to raise his first round but what kept him up at night was (besides the funding) the board-CEO chemistry. This was TA’s sixth startup, and he wanted to make sure he did what his gut told him – seek out those investors who understand the business and not just bring money. And can stand alongside and support his entrepreneurial roller coaster ride!

TA did not start searching for money and made a few moves that show his entrepreneurial acumen. And a lot of entrepreneurs can draw some lessons from his story – he is one of the few we know who proactively built his board.

TA did his homework well and knowing Brad is an avid runner, asked him via a tweet for some suggestions on places to run in Boulder, CO.  A few weeks later, on a cold December morning, Brad and TA, not necessarily dressed in their best attires meet at 6:00 am  and head out for a run. Five months later, Foundry Group led a $6.75 million Series A investment in Gist alongwith Vulcan Capital. (Read the WSJ blog on how Gist’s new funding began with a twitter message)

Brad joined the board along with Steve Hall of Vulcan Capital and a classic three member startup board was formed. As we interviewed TA for Startup Boards book, we found a simple theme that governs and creates a good startup board dynamic:

1) Startup boards function like a team: All three were actively involved in all decisions and walked alongside – there was no hierarchy. “It would have been very weird if we had the formal stuff of motions, votes, call to order and such” says TA. We were like a team.

2) No painful board slides:  TA would prepared a pithy 2/3 slide presentation where the board would discuss top 3 issues and how they could help. “It was not a presentation in my view but more a framework for discussion – 80% of time was spent in discussing the hard issues —- and yes, it was productive” says TA.

3) Making tough decisions and delivering strong outcomes: The board and TA (as CEO) would often not agree on everything. “For example, I wanted to find a way to get some revenues and the board wanted to push for adoption  - we were split straight in the middle on this decision. But we picked a path and the board supported me at every step. I had to earn their trust by my actions – these are accomplished only after you deliver meaningful outcomes” TA says.  ”The hardest part for any CEO is to admit I dont know” he adds, but if you build a trusting board-CEO relationship, this becomes easier.

With TA, it was a text book case – a great CEO, a supportive board and good market timing – in late 2011, Gist was acquired by RIM / Blackberry. Three years after the first round of investment, everyone celebrated the outcomes. Read TA  views here in his blog How VCs can be awesome board members

As CEO, you need to know how your investors can

(a) function as a part of your team,

(b) how they behave in the time of crisis,

(c) how they can support you when you are missing milestones – rest assured you will miss plenty of milestones.

If you build your board proactively, you can be assured of supportive behavior in tough situations.  We all have had our share of bad relationships – screamers and unstable minds who crumble under pressure, or worse threaten to fire / sue / emotionally blackmail you. One CEO we know was threatened of shareholder action after a down round. Entrepreneurs who focus too much only on the money (scoring a high pre-money) and not enough on the board-CEO chemistry run this risk – a non-trivial issue by any means.

In such situations, you get the money but end up dealing with all kinds of unknowns.   Its like getting married only for the dowry (lots of cash, a flat screen TV, some gold or even a convertible beemer) and having no emotional connection with your partner. So if you chose to focus only on the money, at least follow the best practices of dowry — ask for a flat screen TV with that term sheet!