Cat people and dog people. East Coasters and West Coasters. Capitalists and communists. They all look at the world so differently.
Now consider venture capital board members and CEOs.
Sure, they all have the same goal: to ensure that the company succeeds. Yet this dynamic can be adversarial, sometimes even hostile. And it really doesn’t have to be that way, even in the worst of times. I know — I’ve been there on both sides.
Let’s be clear: Unlike some of those previously mentioned pairings, these two constituencies absolutely need each other. I know that better than anyone: I’ve been a venture capital investor for more than 25 years, which has led to me serving on the boards of more than 60 companies — public and private. And then, about 18 months ago, I took on the CEO mantle at security analytics company RedSeal, one of my Venrock investments. It wasn’t a completely new deal for me since I’d already spent almost 10 years on the company’s board. But boy, from my new vantage point, the view is certainly different.
Here are the biggest issues, in a nutshell. On one side, board members only know what a CEO decides to tell them. On the other, board members who get more involved can be seen as meddling, or at least “over-involved.”
So what’s the right balance here? Where’s the line between not enough and too much, and how do both sides stay on the right side for healthy and productive conversations?
The Board Member Side
In this role, my fiduciary responsibility is to the owners of the company. In a venture deal, that largely means the investors, but clearly the founders are important, too. I need to ensure that the company is being run responsibly, and well. However, there are different ways to do that; individual personalities have a lot to do with it, and outside factors also can influence the relationship.
For example, a VC who serves on 14 boards probably doesn’t have the time to become too involved with any one. But when there are only two or three companies in the mix, there’s an inclination to spend more time at each, and that can go against the preferred dynamic. I know this from experience: I’m embarrassed to admit that one of my first CEOs had to ask me to spend a little less time with his finance department.
The CEO Side
My top job as CEO is to marshal resources for the company. That covers many elements: capital, talent, customers, etc. However, in a venture startup, I particularly need the money investors bring to the company, in addition to the value of their connections and broad experience. Meanwhile, if I’ve got the CEO job, I largely want to be left alone to do the job. The more time I have to spend reassuring board members, the less time there is to focus on corporate priorities. It takes a lot of time to prepare for board meetings, for example.
Set proper expectations, keep people informed and never surprise your board.
This requires striking a balance between board duties and CEO duties. I need the freedom to provide the vision, choose my team, allocate resources as I see fit (within reason), create a suitable culture and drive company performance. As the CEO, the simple truth is that I’m in the best position to know what the market is doing, and what the company should do. Being second-guessed by board members goes against that mission.
Advice To CEOs
Let’s say there will always be that one board member with too much time and too many questions. But apart from that, keeping board members adequately informed and delivering good results is the best way to earn their trust and respect. Give them all the news, even the bad news, up front. I’ve seen different instances of what I call the “mystery story,” where a progression of events and thoughts leads to an apparently inevitable conclusion.
The board may not it see it as inevitable. So start with the conclusion, then give the details. You know how Wall Street hates surprises? So does your board. If you’ve kept them in the loop, even the bad news won’t sound so bad.
Sure, a good story is great for raising money or selling. But you don’t need to sell your board members. Many of them are investors. All of them are your business partners.
Again, no matter how much reassuring is done, some board members can get too involved, even if they don’t have legitimate concerns. But for the rest, keeping them informed will head off any real second-guessing. If they’re not informed, they’ll find out soon enough — in this business universe, there are simply too many channels for information to be kept within company boundaries.
Advice To Board Members
As a board member, I want to trust my CEOs to run their companies. And I do…until the day I don’t. Unfortunately, that usually happens about six months too late. Board members aren’t at the company every day, nor should they be. Things can unravel fast. So, because CEOs are only telling you what they want you to know, what’s the best way to know that the situation is unravelling?
First, if there are real problems pending, the data that actually is being given to the board likely has clues pointing to red flags. A careful review of the balance sheet can turn up glaring inconsistencies. If there are suspicions, and the CEO can’t allay them, then you have not only the right but the duty to gather information and talk to others on the board, and even the management team.
Having been on both sides of the fence, I understand the differences between the two roles, and why they can seem adversarial. I also understand why it doesn’t have to be that way at all. But both parties have to work at it to make that happen. At the end of the day, if everyone puts the business first, then it will be first. Set proper expectations, keep people informed and never surprise your board.