Fred Wilson ran an excellent series recently on his blog about startup boards of directors. The series began with several posts of Fred’s typically concise and valuable insights, and subsequently featured guest opinions from a number of experienced practitioners in the ecosystem.
I encourage you to read them all (start here) when you have time and come back to this post later if you like.
One of Fred’s pearls of wisdom on board meetings struck me as particularly relevant for startups here in continental Europe:
“Board meetings should not be held for the benefit of the board; they should be for the benefit of the CEO.”
This message resonated with me when I think about board meetings in many venture-backed startups here. VC’s often dominate the boards of European startups, certainly in terms of influence if not in full legal voting majority. Board composition in European companies is closely correlated with the company’s corporate form. In Belgium and the Netherlands, for instance, the common BV corporate entity has a two-tier structure, with a board of supervisory directors separated from the board of managing directors. In France, a startup may have a single tier structure (conseil d’administration) but frequently adapts a two-tier one at it matures (directoire + conseil de surveillance). Because of the absence of management in the supervisory board layer of a two-tier structure, this organ is commonly controlled by the VC’s.
This is certainly not a problem per se. However, a VC-dominated board can create an environment in which the management team comes to regard the board meeting as a reporting obligation to plow through, i.e. a quarterly or bi-monthly chore. A European VC tilt toward under-capitalization — or at least the reluctance to fund outsize financing rounds that give even those companies with a high burn rate an extended cash runway — can keep startups on a tight financing leash and thus also reinforce the headmaster/pupil dynamic.
The consequence is that board sessions turn into operational update exercises as opposed to truly open exchanges on the most important strategic issues facing the company.
So how to avoid this trap ?
Both the VC’s and the entrepreneurs are responsible. As VC’s, we should communicate clear expectations and board meeting rules of engagement to entrepreneurs at the time of the deal. We should also take care to isolate the important but operationally-oriented reporting items to a place outside the boundaries of the board meeting.
Entrepreneurs, and this can be uncomfortable, need to learn how to (politely) say ‘No’ to VC requests to add non-strategic topics to the board agenda. Rather, they should be strict in prioritizing the most important strategic topics for discussion and should view each board meeting as a chance to share (as Fred called it) “the issues that are keeping them awake at night.”
Then we’ll all get a good night sleep.