8 ms·

Board Members

167 points by bhaumik 12y ago

rattray 12y ago
Where do people find "outside" board members? I assume the term "outside" here implies someone who isn't longtime friends with either founders or investors, but someone who does have the respect of both. If I was a founder who wanted to build a board, how would I go about finding the right person?
- Kevin_S 12y ago
  My guess would just be to research experts in the field of the startup. This person wouldn't be an investor but they may have some interest in the startup succeeding. Someone with domain expertise on the board makes a lot of sense.
- frandroid 12y ago
  You would look for someone with experience in the area you want to operate in, or maybe someone from a complementary sector. The role of the board is to look at the company in the larger context, i.e. within its market at large, and within its general industrial sector. You also want someone who has a good track record hiring executives, so that they can broaden the circle of people the CEO might hire from. Your investors, by their virtue of having money, don't necessarily have experience in your specific market, so it's good to bring outsiders that are more interested in seeing the company succeed period, rather than maximizing their own investment, as investors are.
  - terravion 12y ago
    This sounds right in term of what to look for. But what are the mechanics of the search? It seems like something really personal for the company--and yet founders are often not likely to have great independent board candidates that they have long histories with. Investors are much more likely to know great independent board candidates--so how do you structure a search so it yields the independents are 1) as good as you need them to be and 2) not actually just more investor seats on the board?
    - frandroid 12y ago
      Unless you're already accomplished with a previous track record, you're probably going to be looking for advisers before investors, so usually as a founder you've already asked tons of people for advice. Or you should have, anyway. :) When talking to such people, you have to keep in mind that you'll want to recruit people for a board one day. It's really a socializing and networking thing.
abalone 12y ago
> It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this) Can anyone elaborate? Sam articulates several advantages to having a board (focus on execution, thinking big, hiring executives) but none of them really require the board to have voting control, i.e. the ability to override the founder. More generally, I think most founders would be fine with and welcome an outside board as long as there was a Zuckerberg-like voting agreement where the founders retained control. But then again I don't really understand the difference between that and a board of advisors. Bottom line, why do investors care about control at the early stages? Do they really expect that they'll need to override the founder in the nascent stages? Is it just a security blanket? I would be wary of investors who really insist on the ability to vote against the founders at the seed to series A stage.
- randall 12y ago
  See Mrkurt's comment, something that can likely be copied and pasted a bunch of times in this thread. https://news.ycombinator.com/item?id=8591724 https://news.ycombinator.com/item?id=8591724
- minimax 12y ago
  I think you are misunderstanding the way corporations are organized. All corporations must have a board of directors, and the board of directors is the ultimate top level decision making entity within the corporation. The board is always in control. Shareholders have the ability to periodically vote on directors, but that is basically the extent of their power. Shareholders have no right to influence day to day operations of the corporation. So, if you are a founder and want to assure control of the board, you must maintain a majority of voting class shares, otherwise large investors could vote in their own directors who can do whatever they want (like replacing the founder as the CEO).
  - stepstep 12y ago
    > All corporations must have a board of directors It this a legal requirement, or is it just by convention? Has anyone ever experimented with alternate company structures?
foobarqux 12y ago
If the problem is really only guidance and outside input, wouldn't having advisors (no voting rights) solve the problem described in the essay without giving up any kind of control?
- taylorwc 12y ago
  In theory, sure. The practical issue is that advisors often don't have as great an incentive to be highly engaged.
  - foobarqux 12y ago
    What is the incentive of a formal board member and why can't it be replicated with an advisor?
    - taylorwc 12y ago
      In the context of sama's post, the formal board member will have made a financial investment. That means that s/he has committed either his/her own money, or that of an LP; in a good board member, this creates alignment and engagement--since the board member wants the company to succeed for financial and reputational reasons.
      - foobarqux 12y ago
        Presumably the outside board members described by Sam Altman do not make a financial investment but, regardless, someone who has made an investment already has an incentive; they would be just an incentived with or without a board seat.
        taylorwc 12y ago
        I'd encourage you to reread Sam's post. The whole premise is that the typical terms of a Series A investment no longer include a board seat by default for said investor. He does say that board members don't have to be investors, but that " it’s very important to get an advisor with a significant equity position that will play the role of a board member."
kurtle 12y ago
This article articulates well that it's important to have good board members and it's disasterous to have bad ones, but then doesn't really explain what to look for in a board member besides experience. I'd love to see some input here about what makes a good vs bad board member and how to identify one when making a board.
- foobarqux 12y ago
  Because it wasn't the topic of the essay.
  - metaphorm 12y ago
    it should have been. that's much more important than just saying "having a good board is good".
- ChuckMcM 12y ago
  Board members that have impressed me are ones that both care about the business and they are willing to invest time in making it successful. Bad board members don't show up for meetings, or don't contribute anything when they are at the meeting or between meetings. These folks are, in theory, either experienced at getting the company to the next level or connected to people who can help there.
cperciva 12y ago
This is slightly off-topic, but I've always wondered: How do startups with a small number of founders set up their boards? I heard talk of boards with 2 founders, 2 VCs, and 1 outside board member; but with a single founder, there's no way to avoid being outvoted. Would there be a "friend of the founder who is trusted to always vote with her" seat to keep the board balance?
- sillysaurus3 12y ago
  While we're offtopic, may I ask why "board control" has been conflated with "we need someone who will help the company"? It seems like the value of a board member is their role with the company, not their control over the company. Those seem like two distinct concepts, and you only want to deal with the former. Why can't founders give people equity stakes on par with what a "board member" would receive, while giving them no voting power within the company? Is this a case of "In theory that would work, but in practice you wouldn't get the benefits an actual board member would bring"? If so, why is that? Maybe there are few people who would actually bring enough value to your company where it makes sense to offer them a board seat. If there are few, then they can demand a board seat. And maybe that's why voting power goes along with their positive effect: It's part of the deal. But I'm just wildly guessing, and it'd be great to hear from someone with insights about the actual reasons one can't simply give up an equity stake and expect to receive help on par with an actual board member.
  - adventured 12y ago
    Board members typically don't get paid especially well, nor receive meaningful equity positions in exchange for being on the board. If you're a sizable investor in the company, obviously that's a different context. In the Fortune 500, it's a prestige gig as much as anything. For many smaller companies, agreeing to be on the board while not being a large investor, is almost akin to being involved in a local govt board of economic development for a town or county - it's sometimes done as a favor, out of quasi-charity to help out, and or you know some of the people involved and want to see the company succeed. It can also be a great way to make more connections in business; one board membership refers to the next - you can kind of move up an economic chain that way if you go on a successful ride-along. People like to be associated with / involved with successful enterprises. The historical reason for connected board control, is at least two fold: enabling trusted parties to oust the CEO without needing to hold a large vote by shareholders (not an easy thing to do now, and more difficult a century ago); and enabling direct major shareholder control without requiring a wider shareholder vote (if you own 10,000 shares of Walmart along with a million other investors, while technically those total shares have the same voting value net as the hedge fund that owns 5% of the company - the 5% entity wants a lot of influence due to the concentrated stake). Board control also enables rapid action in cases of fraud or abuse by the top executive/s, in which case time may be critical - that is, you don't want to wait months for a full shareholder vote. Also, who do you leave legal authority to, when it comes to deciding the replacement for a CEO that has decided to retire or quit (or dies, or whatever)? Certainly shareholders as a whole have legal control, but it's not very practical to have thousands of shareholders trying to figure out who gets to be the next CEO (most of those shareholders will have absolutely no idea who would make a good candidate, or where to start, having typically zero direct involvement in understand the business top to bottom, and most shareholders will have no experience running a serious business). The only entity that makes sense in that regard is a board of some sort.
sethbannon 12y ago
Especially for first time founders, not inviting an investor to sit on your board when you raise is a mistake. I can speak from personal experience here. The many upsides of an outside board member (mentorship, a cadence to the business, outside perspective, pattern recognition, real investor buy-in) outweigh the few downsides (loss of control, investment of time in board management). It's an especially insidious mistake for founders, because not giving up control (i.e. not giving up any board seats) seems like a victory during fundraising, and you only see the downsides when things start to turn sour. Here's another great post about the value of outside board members: http://allthingsd.com/20130927/the-value-of-a-board-at-the-seed-stage/ http://allthingsd.com/20130927/the-value-of-a-board-at-the-s...
- jacquesm 12y ago
  Loss of control can be a huge downside though. What's missing from this article is a way to distinguish bad board members from good ones. The same goes for shareholders (founders, angel investors and VCs). One bad one can cause you a ton of trouble and take attention away from the day-to-day running of the business when it matters most.
dude_abides 12y ago
>> As a side note, bad board members are disastrous. This is too important a point to be left as a side note; I'm sure this is the primary reason founders prefer not to have external board members. "How to choose an external board member" would be a great follow-up essay.
- deleted 12y ago
  [deleted]
will_brown 12y ago
To clarify the corporate structure generally: Shareholders: They are owners and elect the Board of Directors. There could be different classes of shareholders, some with/without voting rights. Board of Directors: They generally vote on the corporate officers and authorize corporate action outside the day to day control/operation of the business. Voting rights, powers, terms of directorships and the like are typically defined in corporate documents, and if none exist, then generally this is all defined by a given State statute/code. Officers: Titles include President, CEO, COO, CFO, Treasurer, Secretary, ect... These people are in control of the day to day operations of the company. Again powers, terms and the like are typically defined in corporate documents, and if none exist, generally are established by default by a given State statute/code. This is generally the default structure throughout all the states. All these things can be modified/defined in greater detail through shareholder agreements, by-laws, restrictive agreements, ect...
softdev12 12y ago
Having just finished the book Hatching Twitter by Nick Bilton, it seems that the board is the crucial thing for founder control. This really surprised me because I had assumed that the board worked for the shareholders and that if you had the majority of the shares, technically you controlled the board via proxy. But there must be some sort of legal maneuver that prevents this (otherwise, a majority shareholder could call a special board meeting and replace the board or expand it in their favor). It was puzzling to me how Ev Williams basically got kicked out of Twitter by the board (of which he was a member) when he was the largest shareholder. Perhaps his percentage was diluted down during the previous rounds? The book implied the board kicked Williams out against his own volition even though he seemed to hand pick all the board members. If a case like Twitter (and now Tinder) where the board sets the ultimate agenda is the norm, choosing board members is something that should be given more emphasis and the info in the post seems to be exceedingly helpful.
- mathattack 12y ago
  I believe that Tinder was a fully, or majority, owned subsidiary. It's a different case. As for Twitter - by the time a company gets that big, it's rare for a founder to have such a large stake. Google and Facebook are the exceptions, though Twitter does deserve to be mentioned with them.
mathattack 12y ago
But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day. This... I believe that venture money on it's own is not worth the price. (VC's expected rate of return is higher than most credit cards) Getting the right golden advisor - all of a sudden the credit card looks cheap.
netcan 12y ago
I no nothing about this sort of thing but.. what about employees on the board of directors, advisory board or creating an employee board to fill this role? I now that european labour socialism, unionism and some asian management paradigms have included things like this in the past. Are there any useful takeaways from those experiments? I realize that the purpose of a board is to bring in a perspective less tainted by the day-to-day, but there can often be a disconnect between day to day and "horizon." Connecting the two is important. Assuming smart people, who's to say that employees would not be as capable of bridging that gap then some independent advisor with useful experience elsewhere, but not much understanding of the company itself. The few times that I have been privy to that kind of discussion boards and advisors are supposed to be involved with (with real stakes involved), I always thought they had a poor grasp on some important aspects. Big ideas need to play to the strength of the company. Insiders have a distinct advantage here. Ideas that employees really like, have a extra advantage.
bjornsing 12y ago
> But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day. That IMHO sets the right tone. You want board members that understand they're on the sidelines, watching and evaluating. You don't want people who think they're the captain(s) of the team, "experienced in building companies".
corin_ 12y ago
One small thought on the penultimate para: > The companies that have had the biggest impact and created the most value have had excellent board members (and executives). I don’t believe this is a coincidence. It can of course go both ways. I'm not saying good boards don't improve their companies, but good founders (likely to make good companies) probably also pick better board members.

167 points by bhaumik 12y ago

Where do people find "outside" board members? I assume the term "outside" here implies someone who isn't longtime friends with either founders or investors, but someone who does have the respect of both. If I was a founder who wanted to build a board, how would I go about finding the right person?

Kevin_S 12y ago
My guess would just be to research experts in the field of the startup. This person wouldn't be an investor but they may have some interest in the startup succeeding. Someone with domain expertise on the board makes a lot of sense.
frandroid 12y ago
You would look for someone with experience in the area you want to operate in, or maybe someone from a complementary sector. The role of the board is to look at the company in the larger context, i.e. within its market at large, and within its general industrial sector. You also want someone who has a good track record hiring executives, so that they can broaden the circle of people the CEO might hire from. Your investors, by their virtue of having money, don't necessarily have experience in your specific market, so it's good to bring outsiders that are more interested in seeing the company succeed period, rather than maximizing their own investment, as investors are.
- terravion 12y ago
  This sounds right in term of what to look for. But what are the mechanics of the search? It seems like something really personal for the company--and yet founders are often not likely to have great independent board candidates that they have long histories with. Investors are much more likely to know great independent board candidates--so how do you structure a search so it yields the independents are 1) as good as you need them to be and 2) not actually just more investor seats on the board?
  - frandroid 12y ago
    Unless you're already accomplished with a previous track record, you're probably going to be looking for advisers before investors, so usually as a founder you've already asked tons of people for advice. Or you should have, anyway. :) When talking to such people, you have to keep in mind that you'll want to recruit people for a board one day. It's really a socializing and networking thing.

abalone 12y ago

> It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this) Can anyone elaborate? Sam articulates several advantages to having a board (focus on execution, thinking big, hiring executives) but none of them really require the board to have voting control, i.e. the ability to override the founder. More generally, I think most founders would be fine with and welcome an outside board as long as there was a Zuckerberg-like voting agreement where the founders retained control. But then again I don't really understand the difference between that and a board of advisors. Bottom line, why do investors care about control at the early stages? Do they really expect that they'll need to override the founder in the nascent stages? Is it just a security blanket? I would be wary of investors who really insist on the ability to vote against the founders at the seed to series A stage.

randall 12y ago
See Mrkurt's comment, something that can likely be copied and pasted a bunch of times in this thread. https://news.ycombinator.com/item?id=8591724 https://news.ycombinator.com/item?id=8591724
minimax 12y ago
I think you are misunderstanding the way corporations are organized. All corporations must have a board of directors, and the board of directors is the ultimate top level decision making entity within the corporation. The board is always in control. Shareholders have the ability to periodically vote on directors, but that is basically the extent of their power. Shareholders have no right to influence day to day operations of the corporation. So, if you are a founder and want to assure control of the board, you must maintain a majority of voting class shares, otherwise large investors could vote in their own directors who can do whatever they want (like replacing the founder as the CEO).
- stepstep 12y ago
  > All corporations must have a board of directors It this a legal requirement, or is it just by convention? Has anyone ever experimented with alternate company structures?

foobarqux 12y ago

If the problem is really only guidance and outside input, wouldn't having advisors (no voting rights) solve the problem described in the essay without giving up any kind of control?

taylorwc 12y ago
In theory, sure. The practical issue is that advisors often don't have as great an incentive to be highly engaged.
- foobarqux 12y ago
  What is the incentive of a formal board member and why can't it be replicated with an advisor?
  - taylorwc 12y ago
    In the context of sama's post, the formal board member will have made a financial investment. That means that s/he has committed either his/her own money, or that of an LP; in a good board member, this creates alignment and engagement--since the board member wants the company to succeed for financial and reputational reasons.
    - foobarqux 12y ago
      Presumably the outside board members described by Sam Altman do not make a financial investment but, regardless, someone who has made an investment already has an incentive; they would be just an incentived with or without a board seat.
      - taylorwc 12y ago
        I'd encourage you to reread Sam's post. The whole premise is that the typical terms of a Series A investment no longer include a board seat by default for said investor. He does say that board members don't have to be investors, but that " it’s very important to get an advisor with a significant equity position that will play the role of a board member."

kurtle 12y ago

This article articulates well that it's important to have good board members and it's disasterous to have bad ones, but then doesn't really explain what to look for in a board member besides experience. I'd love to see some input here about what makes a good vs bad board member and how to identify one when making a board.

foobarqux 12y ago
Because it wasn't the topic of the essay.
- metaphorm 12y ago
  it should have been. that's much more important than just saying "having a good board is good".
ChuckMcM 12y ago
Board members that have impressed me are ones that both care about the business and they are willing to invest time in making it successful. Bad board members don't show up for meetings, or don't contribute anything when they are at the meeting or between meetings. These folks are, in theory, either experienced at getting the company to the next level or connected to people who can help there.

cperciva 12y ago

This is slightly off-topic, but I've always wondered: How do startups with a small number of founders set up their boards? I heard talk of boards with 2 founders, 2 VCs, and 1 outside board member; but with a single founder, there's no way to avoid being outvoted. Would there be a "friend of the founder who is trusted to always vote with her" seat to keep the board balance?

sillysaurus3 12y ago
While we're offtopic, may I ask why "board control" has been conflated with "we need someone who will help the company"? It seems like the value of a board member is their role with the company, not their control over the company. Those seem like two distinct concepts, and you only want to deal with the former. Why can't founders give people equity stakes on par with what a "board member" would receive, while giving them no voting power within the company? Is this a case of "In theory that would work, but in practice you wouldn't get the benefits an actual board member would bring"? If so, why is that? Maybe there are few people who would actually bring enough value to your company where it makes sense to offer them a board seat. If there are few, then they can demand a board seat. And maybe that's why voting power goes along with their positive effect: It's part of the deal. But I'm just wildly guessing, and it'd be great to hear from someone with insights about the actual reasons one can't simply give up an equity stake and expect to receive help on par with an actual board member.
- adventured 12y ago
  Board members typically don't get paid especially well, nor receive meaningful equity positions in exchange for being on the board. If you're a sizable investor in the company, obviously that's a different context. In the Fortune 500, it's a prestige gig as much as anything. For many smaller companies, agreeing to be on the board while not being a large investor, is almost akin to being involved in a local govt board of economic development for a town or county - it's sometimes done as a favor, out of quasi-charity to help out, and or you know some of the people involved and want to see the company succeed. It can also be a great way to make more connections in business; one board membership refers to the next - you can kind of move up an economic chain that way if you go on a successful ride-along. People like to be associated with / involved with successful enterprises. The historical reason for connected board control, is at least two fold: enabling trusted parties to oust the CEO without needing to hold a large vote by shareholders (not an easy thing to do now, and more difficult a century ago); and enabling direct major shareholder control without requiring a wider shareholder vote (if you own 10,000 shares of Walmart along with a million other investors, while technically those total shares have the same voting value net as the hedge fund that owns 5% of the company - the 5% entity wants a lot of influence due to the concentrated stake). Board control also enables rapid action in cases of fraud or abuse by the top executive/s, in which case time may be critical - that is, you don't want to wait months for a full shareholder vote. Also, who do you leave legal authority to, when it comes to deciding the replacement for a CEO that has decided to retire or quit (or dies, or whatever)? Certainly shareholders as a whole have legal control, but it's not very practical to have thousands of shareholders trying to figure out who gets to be the next CEO (most of those shareholders will have absolutely no idea who would make a good candidate, or where to start, having typically zero direct involvement in understand the business top to bottom, and most shareholders will have no experience running a serious business). The only entity that makes sense in that regard is a board of some sort.

sethbannon 12y ago

Especially for first time founders, not inviting an investor to sit on your board when you raise is a mistake. I can speak from personal experience here. The many upsides of an outside board member (mentorship, a cadence to the business, outside perspective, pattern recognition, real investor buy-in) outweigh the few downsides (loss of control, investment of time in board management). It's an especially insidious mistake for founders, because not giving up control (i.e. not giving up any board seats) seems like a victory during fundraising, and you only see the downsides when things start to turn sour. Here's another great post about the value of outside board members: http://allthingsd.com/20130927/the-value-of-a-board-at-the-seed-stage/ http://allthingsd.com/20130927/the-value-of-a-board-at-the-s...

jacquesm 12y ago
Loss of control can be a huge downside though. What's missing from this article is a way to distinguish bad board members from good ones. The same goes for shareholders (founders, angel investors and VCs). One bad one can cause you a ton of trouble and take attention away from the day-to-day running of the business when it matters most.

dude_abides 12y ago

>> As a side note, bad board members are disastrous. This is too important a point to be left as a side note; I'm sure this is the primary reason founders prefer not to have external board members. "How to choose an external board member" would be a great follow-up essay.

deleted 12y ago
[deleted]

will_brown 12y ago

To clarify the corporate structure generally: Shareholders: They are owners and elect the Board of Directors. There could be different classes of shareholders, some with/without voting rights. Board of Directors: They generally vote on the corporate officers and authorize corporate action outside the day to day control/operation of the business. Voting rights, powers, terms of directorships and the like are typically defined in corporate documents, and if none exist, then generally this is all defined by a given State statute/code. Officers: Titles include President, CEO, COO, CFO, Treasurer, Secretary, ect... These people are in control of the day to day operations of the company. Again powers, terms and the like are typically defined in corporate documents, and if none exist, generally are established by default by a given State statute/code. This is generally the default structure throughout all the states. All these things can be modified/defined in greater detail through shareholder agreements, by-laws, restrictive agreements, ect...

softdev12 12y ago

Having just finished the book Hatching Twitter by Nick Bilton, it seems that the board is the crucial thing for founder control. This really surprised me because I had assumed that the board worked for the shareholders and that if you had the majority of the shares, technically you controlled the board via proxy. But there must be some sort of legal maneuver that prevents this (otherwise, a majority shareholder could call a special board meeting and replace the board or expand it in their favor). It was puzzling to me how Ev Williams basically got kicked out of Twitter by the board (of which he was a member) when he was the largest shareholder. Perhaps his percentage was diluted down during the previous rounds? The book implied the board kicked Williams out against his own volition even though he seemed to hand pick all the board members. If a case like Twitter (and now Tinder) where the board sets the ultimate agenda is the norm, choosing board members is something that should be given more emphasis and the info in the post seems to be exceedingly helpful.

mathattack 12y ago
I believe that Tinder was a fully, or majority, owned subsidiary. It's a different case. As for Twitter - by the time a company gets that big, it's rare for a founder to have such a large stake. Google and Facebook are the exceptions, though Twitter does deserve to be mentioned with them.

mathattack 12y ago

But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day. This... I believe that venture money on it's own is not worth the price. (VC's expected rate of return is higher than most credit cards) Getting the right golden advisor - all of a sudden the credit card looks cheap.

netcan 12y ago

I no nothing about this sort of thing but.. what about employees on the board of directors, advisory board or creating an employee board to fill this role? I now that european labour socialism, unionism and some asian management paradigms have included things like this in the past. Are there any useful takeaways from those experiments? I realize that the purpose of a board is to bring in a perspective less tainted by the day-to-day, but there can often be a disconnect between day to day and "horizon." Connecting the two is important. Assuming smart people, who's to say that employees would not be as capable of bridging that gap then some independent advisor with useful experience elsewhere, but not much understanding of the company itself. The few times that I have been privy to that kind of discussion boards and advisors are supposed to be involved with (with real stakes involved), I always thought they had a poor grasp on some important aspects. Big ideas need to play to the strength of the company. Insiders have a distinct advantage here. Ideas that employees really like, have a extra advantage.

bjornsing 12y ago

> But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day. That IMHO sets the right tone. You want board members that understand they're on the sidelines, watching and evaluating. You don't want people who think they're the captain(s) of the team, "experienced in building companies".

corin_ 12y ago

One small thought on the penultimate para: > The companies that have had the biggest impact and created the most value have had excellent board members (and executives). I don’t believe this is a coincidence. It can of course go both ways. I'm not saying good boards don't improve their companies, but good founders (likely to make good companies) probably also pick better board members.