We were blessed (cursed?) with the mother of all startup drama this week when Sam Altman was ousted from the top of multi-billion-dollar startup OpenAI. How do we know there was dramaaaa? Even Vanity Fair piled in.
Look, I haven’t been in any of the OpenAI board meetings, so God knows what went on in there. One detail that kept itching at my brain stem, however, was the quote that Altman was “not consistently candid in his communications with the board.” That stuck out to me, because if there’s anything I’ve learned from building companies, it’s that you’ve got to be straight and honest with your board.
Bad news, in particular, needs to travel fast to the board for a whole bunch of reasons. Some of them sound downright tedious (fiduciary duties, anyone?), but they’re deadly serious. I have no inside knowledge of OpenAI or Sam Altman and I’m not accusing anyone of lying, but there is quite a good lesson founders can learn from this whole palaver.
Startups have a reputation for moving fast and breaking things, but that reputation usually doesn’t extend to the board room. The relationship between leaders and their board is a critical component of a company’s success story. The golden rule of this relationship? Honesty.
No, you can’t lie to your board. It’s not just unethical, but it also has far-reaching implications for your business, your team, and ultimately, your own credibility.
The nature of the founder-board relationship is a unique one. Unlike the traditional employer-employee dynamic, this one is more akin to a partnership where the board is not just a group of overseers, but rather a team of experienced individuals who are there to guide, mentor, and support the founders in their journey.
As the startup landscape becomes more competitive, the stakes grow higher and the margin for error shrinks; maintaining a transparent relationship with the board becomes paramount. Honesty fosters trust, facilitates better decision-making, and ultimately, promotes the longevity and success of the business.
Deception, on the other hand, can set the trust on fire. Lying to the board doesn’t just strain this valuable relationship, but it could also put the entire company at risk.
Consider what happened with Theranos. Its founder, Elizabeth Holmes, promised her investors and board that the company would revolutionize blood testing through its technology, which turned out to be entirely fake. The truth came out eventually, and Holmes is currently in jail after being convicted of misleading investors about the company’s technology.
Fostering transparency isn’t just about avoiding deception; it’s about actively engaging in open and honest communication. Delaying getting bad news to the board, bending the truth, or straight up telling porky pies isn’t going to win you awards. The ramifications depend on the circumstances of the lie, including its nature, intent and impact, but they could range from legal action to termination, fines, and even regulatory scrutiny and action from the company’s shareholders.
The gravest mistake you can make is to be dishonest with financial reporting. Misrepresenting financials is a dangerous game that breaks trust and can easily land founders in legal hot water. That flows upward, too: The investors’ limited partners (i.e., the people who invested in the VCs) won’t be stoked to discover that the general partners they entrusted with their money chose to trust the wrong people.
So what do you do to stay ahead of it all?
Regular updates are a good start. Whether it’s via a monthly update or regular board meetings, keeping the board informed of the company’s progress, challenges and plans helps create a culture of transparency. It’s also an opportunity for founders to tap the board’s collective wisdom and gain valuable insights.
Board meetings are not the place for surprises — the best CEOs run any major revelations past each of their board members in advance to keep the actual board meeting focused on leveraging their experience and advice to find solutions.
Like any relationship, it can suck to have to share hard, unfortunate or surprising news. But relationships where bad news remains hidden don’t last. Learning to manage a board is a complex skill that startup founders have to develop separately from everything else they have to do, but it’s well worth picking up along the way.