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  • Writer's picturedcharold

A quick lesson on Boards for startup CEOs

Most of the CEOs I’ve worked with have stopped being CEOs I worked with because they disagreed with their Board.

The CEO hires and fires everyone in the company, but the Board hires and fires the CEO. It doesn’t matter if you are the founder, e.g. Steve Jobs. Apple’s Board fired Jobs because he had a massive disagreement with the CEO John Scully, whom he himself had hired from PepsiCo. Jobs, it is said, always wanted to be CEO, and he probably felt he was going about getting there the right way. He and co-founder Wozniak accepted they knew very little about running a corporation. To that end, they hired first an experienced Board, and later a well-respected CEO.

Wozniak focused on engineering, Jobs on creativity, marketing and product. When two of those products – Lisa and the Macintosh – failed to ignite the market, Jobs found his role reduced. Furious he confronted both Scully and the Board in an argument so heated that neither side could agree afterwards on what happened. Jobs thought he was fired. The Board thought he quit. Either way, Job’s CEO journey seemed to have ended. Yes, there’s a happy-ish ending to this story but that isn’t germane to the point: Boards need handling with care.

So, that’s nine CEOs I’ve worked with personally whose tenures ended not because of financial non-performance, but simply because they did not see eye to eye with their Boards. Two of them were also the company founders.

You might think that you can control that. You founded the company, and you can appoint the board. True to a point. But the minute you raise money you begin to lose that control. When negotiating funding deal terms, investors commonly request a board seat, which is referred to as an Investor Director position. Founders then must consider whether to grant investors a seat on the board or not. Founders frequently propose not needing an investor on the board, but there is often pushback and eventually an agreement for an Investor Director.

According to startup-focused legal services company SeedLegals, “in smaller funding rounds, founders rarely need to offer their investors a seat on the board (32% of the time), whereas raises nearing £1 Million or above often requires Investor Directors (67% of the time).”

Let me start with the most obvious advice: don’t create your own Board-related demise if you can avoid it. That means not massaging the numbers or messages you give to the Board (also known as lying to the Board). Generally, a board hates to fire a startup CEO, especially a founder. It’s messy and expensive and leaves them looking silly. But they will fire you if you mislead them a lot.

It also means being good with the people the Board cares about the most. No, not the customers, the investors. You might not like to do it, but the CEOs Boards really love in early-stage companies are the ones that can charm investment cash out of the Angels, VC, PE, banks, or whoever else has it. If this is not something you are good at then find someone to teach you – a mentor or a coach. It is absolutely a trainable skill, but like most physical performances it requires a degree of muscle memory you only get from practice or training. If you do not care about this, the Board will not care about you.

Other things not to do with Boards include: not knowing what is going on across the business (yes, that means having the numbers at your fingertips, knowing why deals failed, understanding delays and why people leave); constant pivoting (tricky, because many startups pivot, but it’s something you really need to keep for when you must); blaming others (you are the CEO, you); not taking action when others are to blame (even with your co-founders if you must); hiding information, or trying to prevent the Board from having access to the people who do have the information; knowing best, all the time (you presumably appointed the Board for their networks and knowledge, so listen).

When things begin to go wrong, it all too often becomes a media crisis. I’ve encountered Chairmen of the Board briefing national newspapers against the CEO. I’ve seen CEOs trying to disempower the company Board. I’ve heard rumors spread from both sides about the other’s motives. It gets ugly, fast. And generally, you can’t win. The Board will fire you mainly because you have left them no choice, since ultimately, it’s the only real power they have. And one way to give them no choice is to get into a very public spat. Sam Altman is the exception, not the rule. The good news? The media cycle is very quick and if you don't feed it the fire generally goes out.

More good news is that most startups that make it to an IPO do so with their founder CEOs in place. More than 80% in fact. However, that still leaves one in five that do not. Martin Eberhard at Tesla (slow ROI), Noah Glass at Twitter (too popular?), Scott Thompson at Yahoo! (allegedly lied), Adam Neumann (poor governance). Some deserved it, some did not. All ultimately went because the Board decided they had to.


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