The Board Imperative: Cause No Harm

March 12, 2010

I’m a member of ExpertCEO, a great forum where CEOs get to use their peers as sounding boards for issues they face. Being the CEO of a company is the loneliest job in the world, especially when you don’t have a board of directors that is supportive. Difficult board of directors seems to be a bigger issue for expansion stage software companies than I thought.

There has been a recent flurry of posts about dealing with difficult board of directors. Here’s one of the posts:

Dealing with an Out of Control Board Chairman

I have just finished a Board call where my Chairman hung up on the rest of the board (twice). He has become power hungry and superseded my authority. I am one of the founders and the CEO, and am very concerned about his behavior. He is one of our larger investors and has invested a lot of time in the company – but now feels he can make decisions without Board discussion. Due to the shareholder agreement, he cannot be removed from the Board (he can be removed as Chair). The other board members were shocked at his behavior – but I can’t seem to get any of them to stand up and “manage” this person. I have found it very difficult to manage him myself. Short of threatening to quit a company that I founded, does anyone have any other suggestions?

To summarize the feedback/advice some of us gave this CEO:

  • The role of the Chairman of the Board is to ensure that the board of directors is balanced and cohesive. The Chairman needs to be held accountable by other board members to deliver on agreed upon objectives. If the Chairman does not meet expectations, the board would have to weigh its available options and take action.
  • Removal of the chairman or any board member will depend on what the Company’s charter and bylaws provide in that regard and whether there is any contractual right to a board seat (eg, a VC firms typically have the right to designate or remove its director). Share ownership and founder considerations also come into play with this question. Bottom line, each situation will be fact dependent and usually not an easy situation to resolve.
  • Posted by another member: Board drama can be very disruptive and cause a loss of management focus; threatening to quit only escalates the drama rather than resolving it. I would recommend several steps: 1) Have a conversation with the Chairman and really listen to his concerns and issues, don’t debate them, just seek to understand them; 2) seek advice and counsel for the other Board members on how to best deal with the Chairman regarding good communications to seek alignment among Board members regarding the company; 3) make sure that there is true alignment among Board members regarding the company and that the Board is aligned with management. In summary, I would recommend seeking alignment rather than confrontation.>

Read more about this topic in my previous post: The Board Imperative – A Balanced and Cohesive Board

As venture capital advisors, we work really hard to help our CEOs navigate these difficult situations. We first do this by holding ourselves to a high standard in how we conduct ourselves as board members and advisors. Venture funding is not all about money and profits. It is ultimately about building great companies. And great companies require great board of directors. It is incumbent on every board member to bring his/her best self, and most of all, to do no harm.

In looking for investors, CEOs must get beyond deal terms and valuations and pay extreme attention to the core set of values that the investor will bring to the table. When you raise growth venture capital, you are not only getting money to build your business… you are getting a long term partner that is going to be in a very impactful position… to either deliver lots of operational support… or no support… or lots of harm. Make sure you truly know the values of the person and firm that you’re getting locked into. Harmful money is worse than no money at all…

The Chief Executive Officer

Firas was previously a venture capitalist at Openview. He has returned to his operational roots and now works as The Chief Executive Officer of Everteam and is also the Founder of <a href="">nsquared advisory</a>. Previously, he helped launch a VC fund, start and grow a successful software company and also served time as an obscenely expensive consultant, where he helped multi-billion-dollar companies get their operations back on track.