4 ms·

Interesting comments... At the level of CEO and the Board there is no 'boss', there are only checks and balances.

by apalmer 11y ago

jacquesm 11y ago
Indeed. Even a hired CEO has a mandate and the board can fire him/her but they can't unduly influence that person beyond supplying (possibly unsolicited) advice. Otherwise no CEO would ever be able to do their job. Ultimately, whatever happens is the responsibility of the CEO and the board is a source of advise and makes sure the CEO does a good job. If the board is backed by the shareholders they can fire the CEO, but if the shareholders (and in this case that meant the original founders) don't agree by simple majority to get rid of a CEO then he/she can continue to do their job. Whether you still want to is another issue entirely. Anybody in a CEO position would do well to make sure they understand their rights, obligations and their relationships with the various other entities they are dealing with. If you don't understand those then it is a recipe for frustration and potentially disaster. This is the reason why you'll see board members leak to the press (see for instance Yahoo! recently). They can't win the argument in the boardroom and they can't/won't fire the CEO (maybe because they only have a minority share and the rest of the board and/or shareholders do not see their way). This is also why founder disputes are extremely risky for a company. Founders typically hold large blocks of shares and if some those suddenly align with of non-founders then it can really break your stride or cause serious trouble. Say a company has two founder that still hold 60% of the shares, 5% is in an option pool and 35% is held by an outside investor. If the founders no longer see eye-to-eye the board suddenly holds the tie breaking vote and this could lead to the departure of either one of the founders depending on with who the board sides. In such a case I hope your shares are vested if you're the founder that is forced to leave (and if not I hope you have a vesting acceleration clause in your contract).
- nugget 11y ago
  Absolutely, in hindsight there would have been different ways we could have managed the board more effectively from the start, and saved ourselves grief (and likely created even more value). At 22 y/o we lacked the experience to do this. (And don't worry, you couldn't possibly be harsher on us than we were on ourselves once the dust settled and we reflected on the whole rodeo ride.) Part of what I think incubators do well is they remove some of the crazy early stage investor dynamics that used to plague very young early stage founders who raised money from close personal networks of doctors and dentists. The experience I wrote about is from a decade ago in the early 00s. Before Y Combinator came along there was very little written about pre A angel investing.
  - jacquesm 11y ago
    I should write about this. I never realized that it might be useful to someone. Thank you for opening my eyes to this. I'm hip deep in contract work right now (3 due diligences back-to-back, totally crazy, working over Christmas on one of the reports) but I promise that as soon as I have my hands free I'll try to expand on these comments in a blog post. Y combinator is a real game changer in many ways, and one of those ways is that founders now find themselves with a support group of others who have been in similar situations and who have a lot of knowledge about subjects like these. But there is a large group of founders currently not in YC and for those especially it might be advantageous. As a small time investor I'm sometimes in the role of the procedural jerk who makes sure that from the founders perspective all the i's are dotted and the t's are crossed. Usually this is not without friction but I've yet to hear a founder not express (sometimes many years later) that they're happy we went that route. Experience - even a little bit - can be worth gold if there is a power asymmetry and such asymmetries are more the rule than the exception where founders meet capital.

Interesting comments... At the level of CEO and the Board there is no 'boss', there are only checks and balances.

by apalmer 11y ago

Interesting comments... At the level of CEO and the Board there is no 'boss', there are only checks and balances.

Indeed. Even a hired CEO has a mandate and the board can fire him/her but they can't unduly influence that person beyond supplying (possibly unsolicited) advice. Otherwise no CEO would ever be able to do their job. Ultimately, whatever happens is the responsibility of the CEO and the board is a source of advise and makes sure the CEO does a good job. If the board is backed by the shareholders they can fire the CEO, but if the shareholders (and in this case that meant the original founders) don't agree by simple majority to get rid of a CEO then he/she can continue to do their job. Whether you still want to is another issue entirely. Anybody in a CEO position would do well to make sure they understand their rights, obligations and their relationships with the various other entities they are dealing with. If you don't understand those then it is a recipe for frustration and potentially disaster. This is the reason why you'll see board members leak to the press (see for instance Yahoo! recently). They can't win the argument in the boardroom and they can't/won't fire the CEO (maybe because they only have a minority share and the rest of the board and/or shareholders do not see their way). This is also why founder disputes are extremely risky for a company. Founders typically hold large blocks of shares and if some those suddenly align with of non-founders then it can really break your stride or cause serious trouble. Say a company has two founder that still hold 60% of the shares, 5% is in an option pool and 35% is held by an outside investor. If the founders no longer see eye-to-eye the board suddenly holds the tie breaking vote and this could lead to the departure of either one of the founders depending on with who the board sides. In such a case I hope your shares are vested if you're the founder that is forced to leave (and if not I hope you have a vesting acceleration clause in your contract).

nugget 11y ago
Absolutely, in hindsight there would have been different ways we could have managed the board more effectively from the start, and saved ourselves grief (and likely created even more value). At 22 y/o we lacked the experience to do this. (And don't worry, you couldn't possibly be harsher on us than we were on ourselves once the dust settled and we reflected on the whole rodeo ride.) Part of what I think incubators do well is they remove some of the crazy early stage investor dynamics that used to plague very young early stage founders who raised money from close personal networks of doctors and dentists. The experience I wrote about is from a decade ago in the early 00s. Before Y Combinator came along there was very little written about pre A angel investing.
- jacquesm 11y ago
  I should write about this. I never realized that it might be useful to someone. Thank you for opening my eyes to this. I'm hip deep in contract work right now (3 due diligences back-to-back, totally crazy, working over Christmas on one of the reports) but I promise that as soon as I have my hands free I'll try to expand on these comments in a blog post. Y combinator is a real game changer in many ways, and one of those ways is that founders now find themselves with a support group of others who have been in similar situations and who have a lot of knowledge about subjects like these. But there is a large group of founders currently not in YC and for those especially it might be advantageous. As a small time investor I'm sometimes in the role of the procedural jerk who makes sure that from the founders perspective all the i's are dotted and the t's are crossed. Usually this is not without friction but I've yet to hear a founder not express (sometimes many years later) that they're happy we went that route. Experience - even a little bit - can be worth gold if there is a power asymmetry and such asymmetries are more the rule than the exception where founders meet capital.